ISLAMABAD: The merger of two telecom giants Mobilink and Warid into Jazz has promoted monopolistic trend in telecom industry, reveals in a joint study jointly held by Competition Commission of Pakistan (CCP) and World Bank (WB).
The recently launched joint report of WB and CCP have blamed the merger between two telecom giants i.e. Mobilink and Warid into Jazz, as a major factor for decrease in rivalry between cellular operators in Pakistan.
It is interested to note that three years back, CCP itself allowed the merger of the two telecom companies under certain conditions.
The report made an interesting remarks that the merger between Mobilink and Warid resulted in less competition with its competitors in terms of market shares of telecom industry.
The name of the WB report is ‘Market and Regulatory Assessment of Mobile Telecommunications in Pakistan’ which has been prepared under the WB project ‘Strengthening Competition Policy Implementation in Pakistan’.
This is the first of its kind of report which openly talked about the implications of the merger of Mobilink and Warid into Jazz. The report has been prepared by international donor agency in collaboration with CCP, Pakistan Telecom Authority and Information Technology Ministry.
The report states that there are currently four mobile network operators in Pakistan: Jazz, Telenor, Zong and Ufone. Jazz and Zong has consistently maintained market shares in the mobile segment of around 40% (based on the number of subscriptions), despite Telenor’s increasing customer base since entering the market in 2006, reflecting evolution of market shares and the number of firms in Pakistan’s mobile telecoms market.
The report said that even though Jazz and its predecessors have led the mobile market since the onset, the merger with Warid has allowed it to distance itself from competitors in terms of market shares. After the 2017 merger, rivalry between operators seemed to have decreased compared with previous periods.
In order to increase the value of the mobile network in Pakistan it is key to enhance competition (i.e., the level of firm rivalry) in the market and remove existing regulatory constraints. Spectrum auctioning for 3G+ technologies alone was not sufficient to fully increase the capitalization of mobile networks in Pakistan. In fact, according to the World Bank team estimations, 3G auctions in Pakistan led to an increase in the value of the mobile networks of about 80%; a value that is still far below the potential increase in the value of capitalization of over 150%.
The report said that the Spectrum allocation and assignment in Pakistan has been characterized by a piecemeal approach and has been unable to keep-up with the rapid market evolution that characterizes the mobile sector. Spectrum for mobile communications has been typically assigned in a staggered way, which risks giving certain operators first mover advantages, and hinder the capacity of others to build 3G and 4G networks that are effectively competitive. For instance, in the 2016/2017 financial year, PTA carried out another round of auction for the 10 MHz block of the unsold Next Generation Mobile Services (NGMS) spectrum (4G) which was won by Jazz for $295 million (plus 10% tax).68 This auction was carried out just one year after the 850 MHz spectrum auction for 4G technology, launched in the financial year of 2015/2016 to address growing market demand, and which had been won by Telenor for US $395 million.69 To counter this scenario, the Telecommunications Policy 2015 determines that the MoIT, based on recommendations made by FAB and PTA, shall develop a rolling spectrum strategy (every year) with a program for the following three years.
Drawing on international best practices, it is possible to identify a series of entry points that help build an institutional framework that would be shielded from undue external influence from the private and public actors. A key aspect of the independence of a sector regulator is the ability to act without day-to-day management of a minister or the political bodies of government. This includes the power to make final decisions with direct effect on firms that engage in anticompetitive behavior. Only a high degree of independence helps insulate regulators from political pressures, cronyism and interference with their core mandate to safeguard competition. Technical independence may be compromised when: (i) a regulator is a department in a line ministry, (ii) a line ministry can revoke, has veto powers or has the final say on decisions and cases, (iii) the line ministry is responsible for industry matters, which might conflict with the pursuit of regulatory goals. Independence can also be strengthened through a series other rules and practices. Having a Board with multiple members instead of a single commissioner as Head of the regulator reduces the risks of private or public influence. Moreover, it allows for a greater pool of skills and therefore increases the likelihood of higher quality decisions. The law should also establish the qualifications necessary to become a Board member (ideally, expertise in competition law or economics). Separation between investigation and decision-making functions can provide additional protections against undue influence from both public and private entities, WB report added.