is the KEY to
Pakistan Case Study
Sr. Costing Specialist Omantel
Ex Director Finance Coord. PTCL
IIR Interconnection World Forum
Radisson Blu Portman Hotel London
26 Jan 2010
Implementing Interconnection was a Challenge for
Telecoms Liberalization in Pakistan
• My story starts in 2004-05, a landmark year in the history
of Pakistan Telecoms. Privatization, Deregulation and
Mobile policies brought the first phase of Telecom
liberalization in Pakistan. However, bringing the vision of
deregulation into reality meant that there would be a
numerous challenges of interconnect regulation.
• Issues like Significant Market Power, Reference
Interconnect Offer, Co-location, Carrier Selection, Number
Portability, Termination Rates, Limited Mobility etc.; most
of all enforcement of RIO with proper Code of Conduct &
Commercial Practices, were prime challenges after
• This presentation covers Interconnection developments and
lesson learnt from the Telecoms liberalization policy
implemented in Pakistan
• Population 165 m
• GDP per head $ 880
• GDP Services 53%
• # of Households 23.2 m
• Urban Pop. 36%
• Exports $17.8 B
• Imports $32.6 B
• Reserves $15.8 B
Karachi – the largest city of Pakistan
Millions of ALIS
World at large (CAGR: 4%)
1,200 1,138 1,212
Growth has been 1,083 7.00
faster than the 975 6.66
world; Decline 6.27 6.14
started an year later Pakistan (CAGR: 12%)
than the world. 5.23
Teledensity is low at 600 4.50
3.8% as compared.
Broadband 400 3.66
penetration < 1% 3.25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Mobile Cellular Market
• Pakistan’s mobile market has grown phenomenally
in last few years.
• According to BMI and Informa Telecoms, mobile
users base will cross 110m in 2010 (current 98m)
• Total mobile network coverage has reached about
90% of the country’s total population
• Pakistan is one of the most dynamic markets.
Market shares showed significant shift from 2005 -
Mobilink (58% - 31%) Ufone (20% - 21%)
Telenor (7% - 22%) Warid (4% - 19%)
Zong (3% - 7%) Insta (4% - 0.04%)
1994: GoP signed offer for WTO Telecom Accord, issues
Telecoms Liberalization Policy & Legal Framework.
1996: Pakistan Telecoms (Reorganization) Act ; PTA & NTC
established; PTA issues 25 years License with 7 years
exclusivity to PTCL.
1998: CPP introduced and PTML, a PTCL subsidiary, gets
GSM 900 license (4th CMO in the market)
1999: Internet/Data/Payphone & V.A.S licensed liberally.
2000: Liberalization initiatives on Intl. Telecoms; Satellite
segment/GMPCS licensing, Submarine FO cable
landing, Paksat launching.
Deregulation Timeline cont.
2000: IT policy, Internet and Bandwidth price
2004: GoP issued Deregulation Policy; Two new
licenses for GSM Mobile service
2004: Fixed-line sector opened –
158 LL and 14 LDI licenses issued
2005: PTCL privatized to Etisalat (US 2.6 B) and
PTA approved PTCL Ref. Interconnection
2008: Mobilink with 32 m subs. declared SMP
of Mobile market and obliged to provide RIO
Pak Telecoms Buzz by Interconnection
PTA issued Interconnection & Tariff Rules in 2000; updated
with Fixed and Mobile policies in 2004
In Dec 2004, Reference Interconnect Offer (RIO) of PTCL
was approved by PTA.
PTCL signed Interconnection Agreements with 127
Licensees in FY 2004-05
LL and LDIs commenced Commercial Operations from
PTCL was obliged to provide following services:
Exchanges Connectivity (Points of Interconnect)
Domestic Private Leased Circuits (DPLCs)
International Private Leased Circuits (IPLCs)
Enable Access Number Codes for LDI’s
Within One Year
Carrier Selection (CCS and CPS)
Unbundling and FAC Costing within one year
Within 3 Years
LRIC based Costing/ Interconnect Prices
Fixed-line Support: Two Important Initiatives
Access Promotion Contribution (APC)
Universal Service Funds (USF)
• APC : Difference of ISR (18 USC) – 6 USC on
terminating Incoming Intl Calls to be paid to promote
fixed line development and meet access deficit
– By LDI operators to LL Operator
– By Mobile Operators to US Fund
• USF: Established by GoP to develop and provide
subsidized telecom services, particularly
Broadband, in rural and underdeveloped areas. All
licensees were required to contribute 1.5% of
revenue to USF
– PTCL was obliged to install 83k lines in rural areas annually until
2008 in lieu of USO.
Another Important Regulatory Determination
Asymmetric Fixed & Mobile Termination Rates
Period MTR (US Cents) FTR (US Cents)
Jul-04 2.38/min 0.35/min
Jan-06 1.90/min 0.60/min
Jul-06 1.49/min 0.60/min
Jan-08 1.19/min 0.60/min
Operational & Financial Challenges
• Incumbent’s profitability got hurt due to unpreparedness
Delayed establishment of Interconnect/Wholesale Wing
Lack of Support Processes throughout the Country
Congestion of Network and Increased Overheads
Had to face dual-role operators, New Licensee cum O&M Partners
which generated confusion and inefficiencies
Traffic/CDR Disputes and Delayed Settlements
Illegal International IP Telephony by New Entrants and burdensome
LDI Operator’s promoted Grey Traffic through masking numbers
and CDR parameters to avoid APC .
• Inefficient Capex due to lack of planning:
Provision of Interconnection at multiple Locations.
Unplanned Network expansion and capacity enhancement.
Un-coordinated and Delayed Operation Support Systems
PTCL Market Cap Crashed losing US$ 7 B of value:
from US$ 8.2 B (2005) to US$ 1.1 B(2009)
Balance Sheet erosion due to bad Interconnect Management was the major cause
Jun 30 2009 Jun 30 2008 Jun 30 2007 Jun 30 2006
FIXED TELECOMS BLOOD BATH
Good Domestic Trade Debts of Fixed Line business were reduced to half
whereas Doubtful Debts were more than doubled due to flawed RIO and
Working Capital of the Incumbent Operator was severely affected as Trade
Debts reduced instead of growing with the new wholesale customers
On top of that Fixed line Revenue declined by 42%; from US$ 1.3 B (2005) to
US$ 0.7 B (2009)
Therefore, propensity to invest in the fixed industry was dampened
• RIO should be thoroughly planned, deliberated amongst
stakeholders and regulatory/ commercial/ legal experts
• Settlement & Recovery processes should be more Robust &
• Periodic recon. of Traffic/ Accounts Receivable, CDR/ IT
Commercial system liaison and dispute resolution should be more
frequent and faster.
• Before deregulation, proper enforcement tools/ Guarantees
& Arbitration mechanisms should be put in place to avoid
toxic debts (sick assets).
• Incumbent Operator should be better equipped for
interconnect implementation & relation
• Wholesale Interconnect unit should be established 2
months before first interconnect agreement is
Operational • Value destroying weaknesses of OSS, network
security and billing system should be removed
before first POI is commissioned.
• Interconnect billing system must have been
commissioned before implementing RIO
• Real time access to billing system should be
available to both parties prior opening of POIs
• Privatization of Incumbent should have preceded
Deregulation rather than vice versa
• Well qualified single new license for integrated nationwide
Fixedline operator, 2-3 years after privatization, was a
better option instead of LL & LDI separation.
• Robust Interconnection Rules should have been adopted
ex-ante with full consultation
• Price arbitrages must be avoided. Termination rates (FTR &
Policy and MTR) must be the same no matter where the call comes
from (national or international origination).
Regulatory • APC model created a lethal arbitrage leading to huge
volume of grey traffic. Instead of promoting access it killed
fixed access business. FTR should have been increased
instead of introducing APC.
• Number of POIs should have been limited (one in each LL
Region) by regulated RIO.
• RIO should not be a static framework; it should live
vibrantly with the market dynamics.
• Cartelization must not be allowed.
Conclusion & Way Forward
Pakistan needs a robust ICT infrastructure with Information Highways of optimal Quality.
Telecoms will integrate the country into 21CN global info-society ; imperative to promote
social change, counter bigotry, eradicate the roots of hate-crimes/ terrorism
Regulatory framework should be revisited to open up NGN for Broadband competitors
but bias for facilities-based operators should remain.
High MTR have developed mobile penetration. It is high time that balance should tilt to
promote fixed / broadband penetration and cheaper calls to mobile.
Incumbent should encourage revenue sharing models with efficient partners in the
Broadband promotion and customer support services.
Close but non-intrusive monitoring of Operators with specific focus on management
policies re; investment targets, QoS and infrastructure development KPI’s.
ICT network can
Produce a Great
Your Questions are Most Welcome
Sr. Costing Specialist, Omantel