Muhammad Rasheed Khan Assistant Director (Commercial Affairs), Pakistan Telecommunication Authority (PTA) ITU ASP CoE Training Workshop on Broadband Policy and Regulations—Emerging Practices and Lessons Broadband Retail Price Regulation PAKISTAN CASE STUDY 2 – 5 August 2011 Bangkok
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Broadband Retail Price Regulation Pakistan Case Study 30 07 2011
The presentation I delivered at ITU Broadband Policy and Regulation Workshop in Bangkok Thailand (2-5 August 2011)
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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
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