CCP Unearths Cartelisation by Telecom Service Providers

Hello there! If you are new here, you might want to subscribe to the RSS feed for updates on this topic.

The Competition Commission of Pakistan has unearthed a unique international case of alleged cartelisation by telecommunication service providers of cellphones, entering into an agreement to revise selling price of SIMs along with missed calls charges, violating Competition Ordinance. The scam has been unearthed on a tip off of an informer under the informer reward scheme.

Sources told Business Recorder on Friday that the commission had issued 24 show cause notices to all leading cellular companies and individuals like chief executives of mobile phone operators for prima facie violation of Section 4(1) in terms of section 4(2) (a) and Section 4(2) (d) of the Competition Ordinance. The inquiry has been conducted on the basis of evidence provided by an informer.

The cellular mobile telecom operators (CMTOs) prima facie have entered into an agreement to revise the selling price of SIM cards and missed call charges. This amounts to a prime facie violation of section 4 (1) in terms of section 4 (2) (a) of the Ordinance. The inquiry report of the CCP revealed that presently there were about 94.3 million subscribers of mobile telecommunication services and a small price movement by these CMTOs had a direct impact on the customers of their services.

CMTOs, although, prima facie appeared to be competing on services like balance enquiry, missed call charges, selling price of SIM etc. These services have huge demand, as indicated by the replies of CMTOs, where it has been disclosed that the number of SMSs for balance enquiry was nearly four times than the number of other SMSs by pre paid customers.

It appears that by fixing the prices of these services telecom operators not only have adversely affected the interest of customers, but have prevented, reduced and restricted competition in the relevant market. Keeping this in view, the CCP initiated the proceedings against the operators.

The issue at hand is that “Whether the five cellular mobile telecom operators have entered into an agreement in respect of provision of mobile telecommunication services, which has the object or effect of preventing, restricting or reducing competition within the relevant market, thereby, violating section 4 of the Ordinance?

Details revealed that an informer provided ample evidence to CCP under the “Reward Payment to the Informants Scheme”, which consisted of print outs and Personal Storage Table (PST) files of e-mails exchanged between Chief Executive Officers (CEOs) and high level officials of all the five cellular mobile telephone operators in Pakistan.

The thorough analysis of emails clearly indicates the existence of a CEOs Forum prima facie comprising CEOs and senior level employees of the CMTOs. There remains no doubt that CEOs and senior level employees of the five CMTOs meet regularly to discuss various issues related to this sector.

The Enquiry Committee accepts that existence of such a forum, by and of itself, may not be always anti-competitive per se. However, the CEOs Forum appears to have served as a platform to perpetrate grave violations of the law and has not restricted itself to innocuous meetings. The agenda items listed in the above emails reveal that the CEOs and senior level employees of the five CMTOs regularly discussed sensitive issues that, as per established norms of competition laws, are not to be discussed by competitors.

These issues, as per the available evidence, include SIM Selling price Revision , USSD Based Balance Enquiry Charging, Call Set Up Charges, Implementation Based on Ring Back Tone, SMS interconnect/MTR upward revision, APC for mobile, missed call charges, site sharing update, bandwidth sharing proposal, implementation of 668/cleaning of data and implementation of Anti spam filters.

The emails referring to revision in SIM selling price point to an understanding and/or arrangement based on collaborative strategy on pricing. The emails exchanged between the competitors create the necessary atmosphere of mutual certainty on economic aspects and show the existence of an understanding and/or arrangement to revise the prices of SIM and missed call alert charges.

As per established norms of competition laws, even inchoate understandings and partial agreement also amount to an agreement to fix prices. Hence, the CCP concluded that CMTOs have prima facie engaged in and entered into an agreement to revise the selling price of SIM cards and missed call charges. This amounts to a prime facie violation of section 4 (1) in terms of section 4 (2) (a) of the Ordinance.

Upon receiving the emails, the CCP decided to initiate a formal enquiry under Section 37 of the Ordinance. The enquiry officers were authorised to first verify the authenticity of the documents submitted by the informer. According to the CCP inquiry report, it appears that the agreement to fix a charge for balance enquiry services was entered into in a meeting of the CEOs Forum held on June 15, 2009.

Furthermore, subsequent to sharing of the Minutes of CEOs Forum meeting dated 15.06.2009, other emails reproduced below provide clarifications regarding the exact charge that was fixed on 15.06.2009. These emails while providing clarifications to the charge fixed on 15.06.2009 provide prima facie evidence of CMTOs having entered into an agreement to fix prices.

It is important to appreciate that an ‘agreement’ was reached in terms of section 2 (1) (b) of the Ordinance and this includes any arrangement, understanding or practice whether or not it is in writing or intended to be legally enforceable. The CEOs of the CMTOs in their meeting dated 15.06.2009 entered into an agreement (by way of an arrangement and/or understanding) to fix a charge for balance enquiry services.

There was a meeting of the minds to fix this charge as evidenced by emails subsequent to 15.06.2009 and this is a prima facie violation of section 4 (1) in terms of section 4 (2) (a) of the Ordinance.

The CCP found that interestingly all the CMTOs gave rather similar reasons for imposition of a charge for balance enquiries; due to excessive use of this free service there was increased load on system which was impairing the quality of service, so in order to discourage customers, they introduced this charge.

It, however, appears very odd that while all these CMTOs have different system capacities, different number of subscribers, different market shares and tariff structures and USSD balance enquiry service charge was offered to the customers by each of these CMTOs simultaneously or around the same time. Load on the system is built up gradually and is not a one day phenomenon. Logically the decision to introduce charge on balance enquiry, if the companies were operating competitively, should have been arrived at independently.

While the price setting pattern of CMTOs in respect of call rates and SMS rates may prima facie indicate competition so much so that a price move of one paisa appears significant and CMTOs appear to compete on it. The imposition of identical charge of 10 paisas per balance enquiry by these CMTOs remained unexplained, as companies, otherwise, behaving competitively decided not to compete on this service.

All the concerned CMTOs in their replies and during their meetings with the officers of the Commission failed to provide any sound reason for choosing a 10 paisa charge for providing balance enquiry services. The figures provided by concerned CMTOs indicate that a huge number of subscribers were using USSD balance enquiry service. Introduction of a charge of 10 paisas per balance enquiry drastically reduced the number of balance enquires.

Furthermore, since the charge for providing balance enquiry services was fixed by agreement among the CMTOs, importantly it foreclosed the options for users to switch over to another network or operator. In terms of the effect on the consumer, this act of the CMTOs extinguished even the possibility that the service could be offered to the subscribers by their own service provider at a price lower than the others.

The CMTOs argued that this charge of ten paisas has a very nominal impact on the revenues of the company. However, they failed to report the cost savings attached with this service and the resultant benefit of using the free space available on the system for other profit generating services.

In our view, the real benefit is not only the revenue generated by income of 10 paisas per balance inquiry, but it should also incorporate the savings in cost and the resultant benefit stemming from the utilisation of the system for other profit generating services like SMS, MMS and IVR, the inquiry report said.

CMTOs have mentioned that huge number of hits for the balance enquiry services were clogging the system so much so that on few occasions the number of balance enquiries was four times the number of SMSs. Hence, Prima facie it appears that the intention behind unanimously agreeing to the imposition of this charge was not to earn revenue from the service of USSD based balance enquiry, but more importantly was to make the free space available for revenue generating services.

The CMTOs in their replies also mentioned the role of PTA and stated that the charge for balance enquiry was a basket service charge and they took due clearance from PTA, however, it is pertinent to note that PTA has no role in deciding the amount of such charge especially for Non SMP operators, they only have to inform PTA while changing tariffs for basket services, as per Pakistan Telecom Rules, 2000.

On the basis of analysis it appears that the CMTOs have prima facie reached on an understanding on important economic aspects of their businesses pertaining inter alia to: costs of providing services, pricing for services, revenues enhancement, resources sharing, limitations on investment with respect to advertisements, APC and MTR for CMTOs etc and appear to have colluded and conspired on these aspects of business.

In almost, all the meetings of CEOs Forum, the agenda of discussion has gone beyond the mandate that could be granted to a trade/industry association or an industry representative forum to discuss common industry specific issues.

The typical features of network markets require the operators in the network industries to cooperate in certain areas, as discussed above, especially the area of interconnection and call terminations. PTA has issued Interconnection Guidelines and Access Promotion Rules to regulate MTR and APC. Hence, the CMTOs entered into an agreement to revise the selling price of SIM cards and missed call charges which prima facie amounts to violation of section 4 (1) in terms of section 4 (2) (a) of the Ordinance.

The CCP inquiry report added that there was subsequent evidence to show that the discussions on the agenda items were also implemented by the respective CMTOs like charge for USSD balance enquiry @ 10 paisas per balance enquiry. Furthermore, it has also been confirmed that mobile pre paid SIM card of all the CMTOs is available in the market at a minimum price of Rs 150/-.

Keeping in view that the understanding regarding, inter alia, price fixing seems to have emerged from the CEOs Forum and that CEOs can be deemed to have knowledge of the statements made before the officers of the Commission in the preliminary probe, the CCPP has issued notices to the CEOs of the undertakings in their individual capacity for prima facie violation of Section 38(1) (d) & (e) and also for prima facie violations of section 4 (1) (a) in terms of section 4(2) (a) and Section 4(2) (d) of the Ordinance, the inquiry report added.

Via Business Recorder