“Nexus between Competition Regime and Trade and Investment”

Joseph WilsonMember, Competition Commission of

Pakistan3RD International Conference

Islamabad, 29th May 2013

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OBJECTIVE COMPETITION POLICY

Competition policy aims to promote rivalry among business and allocation of resources in which consumer welfare is maximized. Consumer welfare as defined by Judge Robert

Bork, means all things that are good for consumers, such as low prices, innovation, and choices.

2

OBJECTIVE TRADE POLICY

Trade policy objectives are to reduce protection, increase market access for exports and greater global integration. Trade and investment liberalization is seen as contributing to economic efficiency, competitiveness and export-led growth.

3

INTERNATIONAL TRADE, FDI AND COMPETITION POLICY

Professor Kennedy has described the relationship between international trade, foreign direct investment and competition policies:

“These three policies can be mutually reinforcing when pursued with the common goal of encouraging cross-border competition. For example, a liberal trade policy has as its goal the elimination or lowering of barriers to trade in goods, opening foreign markets to goods from abroad, and bringing competition to bear on domestic producers.

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PROMOTING COMPETITION

PTA shall ensure that “fair competition in the telecommunication sector exists and is maintained (Sec. 6(e))

Pemra shall ensure that open and fair competition is facilitated in the operation (Sec 23(2))

OGRA shall ensure that open and fair competition is facilitated in the operation (Sec 6(g))

CCP Shall prevent – preventing, restricting or reducing of competition. 5

LIBERALIZATION OF TELECOM SECTOR IN PAKISTAN

Telecom Deregulation Policy, 2003The Telecom Deregulation Policy paved the way for bringing competition in the fixed telephony.

Mobile Cellular Policy, 2004  objectives, among others, are to:

increase choices for customers of cellular mobile services at competitive and affordable price;

encourage private investment in the cellular mobile sector;

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CELLULAR MOBILE MARKET & FDIName of Operator

Ownership Shareholdings

Foreign Investment

Local Investment

Warid Abu Dhabi Group. 100%

Zong China Mobile 100%

Telenor Telenor Group. 100%

Ufone Emirates Telecommunication Corporation Group (Etisalat)

26% 74%

Mobilink Orascom Telecom Holding (OTH) SAE. 100%

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LDI Operator OwnershipShareholding

Foreign Local

PTCL Ehtisalaat and GOP 51% 49%Multinet Pakistan (Pvt) Limited Axiata Group Malaysia 89% 11%Worldcall Telecom Limited Oman based investors 60% 40%Wateen Telecom Limited Abu Dubi group UAE 54% 46%

Wi-tribe pakistan Limited Qatar based company 100% 0%4B Gentel Internation Pvt Limited Local Company 11% 89%

ADG (Pvt) Limited Dollar East Exchange Company 0% 100%Link Direct International (Pvt) Limited@

Egyptians Investors 100% 0%

Circle Net Communications Pakistan (Pvt) Limited

Circle Net UAE 83% 17%

Redtone Telecommunications Pakistan (Pvt) Limited

investors of various countries 99% 1%

Telecard Limited Local Company 3% 97%Telenor LDI Communications (Pvt) Limited

Telenor Group Norway 100% 0%

Wise Communication (Pvt) Limited International Telecommunication services, Italy

Dancom Pakistan (Pvt) Limited Egyptians Investors 100% 0%

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TOTAL FDI AND FDI IN THE TELECOM SECTOR

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

-60

-40

-20

0

20

40

60

1,905 1,824

1,439

815

374

79

-361

3521

51405410

3720

2199

1574

821

54.1%

35.5%

26.6%21.9%

17.0%

5.0%

-43.9

FDI in Telecom Total FDI Telecom (%) Share

US$

Mill

ion

Perc

enta

ge

9

FDI IN THE TELECOM SECTOR

10

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

-500

0

500

1,000

1,500

2,000

2,500

US

$ M

illio

n

19051824

1439

815

374

79-361

Warid & Te-lenor

China Mo-bile in-vested USD 721 =M

PTA’S MANDATE

PTA shall ensure that fair competition in the telecommunication sector exists and is maintained

How do one maintain competition? Availability of Choices is an element of a

competitive market Choices are dynamic linked to innovation Introduction of 3G services through timely

auctioning of 3G Spectrum CCP recommended Parliamentary Standing

Committee to auction 3G spectrum ASAP 11

FDI IN THE TELECOM SECTOR HAD 3G LICENSES WERE AUCTIONED IN 2010

12

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

500

1,000

1,500

2,000

2,500

US

$ M

illio

n

19051824

1439

815

374

1079

500

Had 3G licenses

were issued

More invested in software,

mobile etc.

COMPARISON: ACTUAL & PROJECTED FDI IN TELECOM

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2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

-500

0

500

1,000

1,500

2,000

2,500

1,9051,824

1,439

815

374

79

-361

FDI in Telecom FDI in Telecom (after 3G)

1079

500

IMPACT ON TRADE THROUGH INCREASED INVESTMENT AND COMPETITION:TOTAL INTERNATIONAL TRAFFIC

14

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-110

1000

2000

3000

4000

5000

6000

7000

8000

1180860

1608

2095

5501

60346334

7737

96148

405

12711662

28863209

3748

Incoming Minutes Outgoing Minutes

Mil

lio

ns

HIGH INCOMING VS. LOW OUTBOUND the data reflects

Competitive rates for incoming calls as opposed to for outgoing

Highly competitive markets are also prone to tilting towards monopolistic market through cartelization

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LDI OPERATORS: INTERNATIONAL CLEARING HOUSE

14 LDI filed an exemption application (Sept. 2011) under Section 5 of the Competition Act, 2010 for establishing ICH. The ICH agreement in essence:

(i) was giving PTCL the monopoly to receive all incoming international traffic

(ii) having a single rate for incoming international traffic and

(iii) dividing the market share of incoming international traffic

Application was later withdrawn (as modalities for ICH could not be worked out)

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POLICY DIRECTIVE BY MOIT

The Ministry of Information Technology (MOIT), issued a policy directive dated 13 August 2012 to PTA for establishment of International Clearing House Exchange ;

On 28 August 2012 the Commission issued a policy note, highlighting competition concerns, and advising against the establishment of ICH

Litigation – resulting in Commission order of 30 April, 2013 declaring the ICH null & void

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MONOPOLIST MARKET: IMPACT ON TRADEPRE AND POST ICH INCOMING TRAFFIC

18

Pre-ICH period (Apr-Sep 2012) Post-ICH period (Oct 2012 - Feb 2013)

11274

3829

CONCLUDING REMARKS

There is a positive correlation between competition policy, trade and investment

Where a country enacts Competition law and creates a competition agency, it sends a signal to all players, locally and international, that it is serious about enforcing competition policy

Just as a competition agency has a positive obligation of advocacy with the government, all government ministries/departments whose policies affect commercial activity and free trade must consult with competition agency before issuing such policy.

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