Muhammad Rasheed Khan

Assistant Director (Commercial Affairs),

Pakistan Telecommunication Authority (PTA)

muhammadrasheed@pta.gov.pk

ITU ASP CoE Training Workshop on Broadband Policy and Regulations—

Emerging Practices and Lessons

Broadband Retail Price RegulationPAKISTAN CASE STUDY

2 – 5 August 2011

Bangkok

Agenda Basic Facts Telecom Indicators Broadband Numbers Transition in Broadband Market

Pre-Incumbent Entry PhasePost-Incumbent Entry PhasePartial Competition

Transition in Retail Price RegulationForbearanceEx-Post Regulation“Ex-Ante” Regulation

Lessons Learnt

Pakistan–Basic Facts

Geographic• Total area of 796,096 km• Neighboring countries - China, India, Iran,

Afghanistan

Population• 167 Million people - World’s 7th biggest country• Annual growth rate of 2.69 % as per latest census • Population density of 166.3 people per Kilometer

GDP• Per capita Income of US $ 2,600• GDP growth rate of 5.3% in recessionary year of

2008• Services sector sharing 53.8 % of total GDP

Mobile Operators

5

LDI Operators

14

FLL Licences: 57Operators: 16

PAKISTAN TELECOM SECTOR

FLL & WLL Subscribers

2004 2005 2006 2007 2008 2009 2010 Apr.110

1

2

3

4

5

6

4.4

5.1 5.14.7

4.2

3.5 3.4 3.4

0.2

1

0.1

2.22.6 2.6 2.7 2.7

MillionsFLL WLL

FLL & WLL Tele-density (%)

2002 2003 2004 2005 2006 2007 2008 2009 2010 Apr.2011

2.42.7 2.9

3.64 4.1 4.1

3.6 3.6 3.6

Mobile Density – 64.8%

Cellular Mobile Growth

2007 2008 2009 2010 Apr.20110

20

40

60

80

100

120

63.2

88.094.3

102.7107.8

Mil

lio

n

Su

bsc

rip

tio

ns

Market Share – Mobile Operators Active Subscriptions

Mobilink31%

Ufone20%

Zong8%

Telenor24%

Warid17%

1999-00 2001-02 2003-04 2004-05 2005-06 2007-08 2009-100

1

2

3

4

5

6

7

2.2 2 2 1.731.25 1.25

0.9

6.255.75 4.75

1.60.99 0.9 0.9

Mobile Termination Rate (MTR)

PK

R/M

in

Issuance of two new licenses

Cellular Mobile Airtime Tariff

(Historical Overview)

Competition

Tariffs

General Transition in Price Regulation

• Ex-Ante Regulation

• Ex-Post Regulation

• Forbearance / Self Regulation

Broadband Numbers

Broadband Penetration

2006 2007 2008 2009 2010 Mar-11 -

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

0.02 0.03

0.11

0.25

0.55

0.78

Pe

rce

nta

ge

Broadband Technology Share

2005- 06 2006-07 2007-08 2008-09 2009-10 Mar-110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

100 98.9

61.2 63.552.9 47.7

1.1 1.71

0.700000000000001

30.191964247732

25.48.7

5.53.2123982034145

11.7

21.4

28.6

0.463532671202734

5.412.3

18.3261311612603

DSL HFC WiMax FTTH EvDO

Broadband Subscribers and Growth Rate

2005-06 2006-07 2007-08 2008-09 2009-10 Mar-110

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

0

50

100

150

200

250

300

26,611 45,153

168,082

413,809

900,648

1,292,897

70

272

146

118

44

Broadband Subscribers

Growth (%)

Transition in DSL Market Share (subscriptions)PTCL (Incumbent) vs. Other Operators

June- 06 June- 07 June- 08 June- 09 June- 10 May-110%

10%20%30%40%50%60%70%80%90%

100%

PTCL Others

Pre Entry Partial CompetitionPost Entry

Transition in Broadband MarketPhase 2 Post-Incumbent Entry Phase

Phase 3 Partial Competition Phase

Phase 1

Pre – Incumbent Entry Period

Pre-Entry PeriodMarket Situation

DSL launched in 2002Forbearance

Pre-Entry Period: Retail Tariffs

128kbpsMonthly Charge

USD 60

Installation Cost USD 60

CPE Cost USD 60

Pre-Entry Period—Incumbent’s Market Position

The incumbent –PTCL was not offering broadband services

Market Review of 2004

PTCL declared SMP:Local LoopLong Distance InternationalLeased Lines

Phase 2

Post – Entry Period

PTCL – Entry

2007 PTCL starts DSL service

Aggressive marketing, wide

range of packages

Free installation Free DSL Modem

Unlimited downloads for 3

months

Post-Entry PeriodComplaint Lodged by ISPAK

Internet Service Providers Association of Pakistan (ISPAK)

ISPAK

complaint

• Predatory Pricing

• Anti-competitive practices

ISPAK

complai

nt

• PTCL tariffs not approved by PTA

ISPAK

complai

nt

• PTCL be restrained from providing DSL services

Post-Entry PeriodComplaint Lodged by ISPAK

PTCL’s DSL Retail Tariffs PTCL IP Bandwidth Rates for ISPs

Unlimited Volume Usage for 3 Months• DSL-256 @ USD 20 per month• DSL-512 @ USD 33 per monthUnlimited Forever• DSL-1Mb @ USD 83 per month

• 256 Kbps @ USD 330 per month• 512 Kbps @ USD 560 per month

•1Mbps @ USD 960 per month

1Mbps package price is far lower than the industry prices

Huge difference in retail and wholesale pricing

Comparison of package prices given by ISPAK:

Post-Entry Period: PTA Findings

DSL services by incumbents

in other countries

Negative effects of declaring an SMP in

retail broadband

market

PTCL does not need approval from PTA

Retail wholesale

retail prices compared ignoring

contention ratio

Post Entry PeriodPTA Determination on ISPAK ComplaintPTCL not to further extend three month unlimited promotion.

May offer three month unlimited promotion for every new city it covers.

PTCL will not shift its customers from copper network to Optical Fibre Network without their prior consent and informing that after the shifting, the customer will not be able to avail DSL service of any operator other than PTCL.

PTA Determination on ISPAK complaint 2007

Post Entry PeriodPTA Determination on ISPAK Complaint

PTCL was directed to reduce the line rent for other DSL operator’s customers by 30% (from USD 3.3 to USD 2.3 per line)Forbearance continued. Complaints regarding anti-competitive practices will be duly reviewed and investigated by PTA in accordance with the legislative and regulatory provisions (ex post interventions)

PTA Determination on ISPAK

complaint 2007

Phase 3

Partial Competition Period

Partial Competition PeriodMarket Review of 2009-10

In 2009, PTA issued Consultation Paper on ‘Identification of Relevant Markets and Significant Market Power (SMP) Operators’.

For the first time proposed:‘Retail Broadband Market’ ‘Wholesale Broadband Access Market’

Rationale: Dynamics of DSL retail market had changed DSL operators’ complaints of anti-competitive practices by PTCL Wholesale broadband access market was concentrated in the

hands of incumbent operator

Partial Competition PeriodMarket Review of 2009-10

Relevant Markets—Market Review 2004

Local Loop

Long Distance International

Leased Lines

Cellular Mobile

National Interconnection

Relevant Markets—Market Review 2010

Local Loop

Long Distance International

Domestic Leased Lines

International Leased Lines

Fixed Interconnection

Mobile Interconnection

IP Bandwidth

Wholesale Broadband

Retail Broadband

Partial Competition Period Market Review Determination 2010

‘Retail Broadband Market’ and ‘Wholesale Broadband Access Market’ declared relevant Market for the purpose of declaring SMP.

Retail broadband market includes provision of always-on internet with a download speed of at least 128Kbps connectivity using DSL or Cable.

PTA observed that PTCL holds 38% of broadband market (in terms of sectoral revenues) whereas other operators have far less market share.

Partial Competition Period Market Review Determination 2010

PTA declared PTCL an SMP in Retail

Broadband Market

PTCL challenged determinati

on in the Court of

Law

Partial Competition Period PTCL Further Reduced Retail Prices

July 2010: PTCL upgraded broadband speeds while keeping the price constant (50% decrease in tariff of 2 and 4 mbps packages)2Mbps to 4Mbps (USD 24/month)4Mbps to 6Mbps (USD 59/month)Price and speed of 1Mbps package was not

changed. PTCL introduced 8Mbps package (USD 82

per month).

Partial Competition Period PTCL Further Reduced Retail Prices

December 2010: PTCL further reduced pricesStudent Bundle @ USD 11.2/month: Unlimited

data download with 1Mbps speed along with Free 150 Voice Minutes and Unlimited fixed-line SMS (30% less compared to normal 1mpbs tariff)

2Mbps Unlimited @ USD 17/month (30% reduction)

10Mbps Unlimited @ USD 116/month

Latest DevelopmentsISPAK’s Second Complaint February 2011

Contention Ratio of PTCL 1:12

Retail Tariff is Below Cost

Wholesale Tariff is high => margin squeeze

Tariff Packages are anti-competitive

ISPAK Complaint

PTCL’s Contention Ratio be calculated by PTA

Accounting Separation for Retail Broadband

Wholesale IP Prices be decreased on actual cost basis

Retail Tariff be regulated by PTA

ISPAK Demands

Latest DevelopmentsISPAK’s Second Complaint February 2011

Contention Ratio of PTCL 1:40

Wholesale tariff is same for PTCL as well

Tariff Packages are not anti-competitive

PTCL Reply

Wholesale tariff doesn’t require regulation—no bottleneck, other suppliers available

So many service providers exist—Market is sufficiently competitive

Retail Broadband Market should be deregulated

PTCLDemands

Latest DevelopmentsISPAK’s Second Complaint February 2011

Contention Ratio

•of PTCL is 1:27•other major operators is 1:30

Accounting Separation

•AS Regulations require SMP status in retail and wholesale markets•2010 Market Review Determination (SMP status of PTCL) is suspended

Cost Study

•In progress; will determine whether costs are below are above tariff•If anti-competitive then Ex-Ante Tariff Approval may be imposed on PTCL

PTA

Transition in Broadband Retail Price Regulation in Pakistan

• Ex-Ante Regulation

• Ex-Post Regulation

• Forbearance / Self Regulation

Lesson’s Learnt

Investment

Protection of smaller operators

Trade off

Lesson’s Learnt

Consumer Welfare

Protection of smaller operators

Trade off

Lesson’s Learnt

Regulatory practices in

other countries (ITU case studies)

Clear legal instruments

Competition is about market

conditions not number of operators

Traditional logical

approach of ex-ante, ex-post

and forbearance

does not hold in all conditions

!!

THANK YOU