The economic establishment in the country is busy these days propagating long-term effects of government’s economic reforms agenda and placing the country on development track. With the existence of old problems faced even by the new budget, the targets set for revenues could hardly be met if decisions come forth for the sectors, which have contributed immensely towards GDP revival in the last few years. Despite last year budget also focused on improving investment perceptions, increased interest was not visible during the recent 3G/4G auction as no foreign or new telecom company ventured in the auction. The Government had also promised to reduce its footprint and make the private sector, the lynchpin of economic activities. Competitive advantage and market considerations are key areas to look at while portraying the economic outlook and formulating policies favouring existing local businesses.
Telecommunications sector has been one of the most thriving sectors in the last decade and is by far the most attractive sector in Pakistan in terms of foreign direct investment coming into the country. The sector has produced a healthy and strong impact on the economy and society, thus benchmarking itself as indispensable for economic development.
The National Assembly has yet to approve the new budget and the news of potential ICH (International Clearing House) rollback has raised concerns of telecom operators as the move is set to cost the national exchequer millions in, and negatively impact the GDP by reduction in foreign exchange, which ICH roped in. Industry experts have also termed the move as anti-local operators, as the beneficiaries will only be the foreign operators who continue to charge very high rates on calls originating from Pakistan, while demanding low termination rates from Pakistani operators.
The current financial situation demands strong and bold measures that not only increase revenue streams for the government but also put in place policies that result in higher tax collection as well. The International Clearing House (ICH) was doing just that - by regulating and documenting international calls, generating higher revenues per minute and contributing to tax net. Every single minute of incoming call terminated through ICH contributes towards exchange rate stability through inflow of dollars. Disregarding other factors like regulation and monitoring of calls and curbing grey trafficking, this single contribution was reason enough to continue with ICH.
Instead of letting perceptions drives policies, rational approach should be adopted. ICH policy had no adverse effect on Pakistani consumers within the territory of Pakistan. It does not result in the increase in telecommunication tariffs payable by the public in Pakistan when making international calls from Pakistan. The only effect of the said policy directive is potentially a change in the profit margins of international operators who seek to terminate calls of their subscribers into Pakistan as compared to previous windfall profits.
In return, a Pakistani subscriber calling to international destinations had to pay huge charges per minute. With ICH, this balance was offset, enabling Pakistani operators claim their equal share from international operators and also opening a new stream of forex inflow for the government. This also ensured balance of trade between international incoming and outgoing calls.
Similar to the policy directives for the rates of commodities like petrol, electricity and gas, which are regulated by GOP, the Access Settlement Rate (ASR) fixed by PTA for international incoming calls is regulated by the government and every LDI is bound to follow it. If ASR is observed, in the absence of ICH, it is difficult to monitor the entire traffic and curb grey traffic. Only a single gateway can ensure counting of exact incoming traffic.
ICH also reduced grey traffic and brought illegal calls under the legal frame work. Every minute terminated by grey network is loss to exchequer and to LDIs, which are suffering huge losses due to this menace. In fact, this is why proposal of ICH was tabled in year 2007 and PTA took the lead for its implementation.
Another reason to regulate price of this services was to generate Universal Service Fund (USF) for un-served and underserved areas of Pakistan. ICH has contributed Rs 17 billion to USF so far which is used to develop ICT infrastructure in under developed areas.
Since the stakes involved were too high, manipulation by foreign carriers by creating negative competition among the LDIs - most of the LDIs have been unable to secure US$ 0.05 per minute as their own margin – was hindering ICH to reach its full potential.
65% of Pakistani expats lives in Gulf countries where telecom tariffs are historically and even today are very high. Also, termination rates for these countries are very high and Pakistan has to create balance between these rates in order to ensure balance of trade.
Instead of withdrawing the mechanism that is bringing multi million dollars into the country every year, a rational approach is needed to address the issue. The economic situation requires contribution from every possible revenue stream to reduce fiscal deficit and the contribution of ICH in terms of foreign exchange remains a big support to the economy. Since its inception, ICH has contributed $1 billion in cash to the national kitty, which equates to revenues of 184 million dollars for the government during the period. The average yearly foreign inflows contributed by ICH stands at USD 550 million, and if the trend continues, the estimated revenues for next 5 years stand close to 2.75 billion dollars. This can go a long way in positively impacting balance of payments and stabilising Pak Rupee against US dollar.
Going forward, Ministry of IT and Telecom and Government of Pakistan need to see the situation long-term and shall enable steps, which increase the role played by this industry and its contribution towards national exchequer. This is time for the decision makers to lead this sector to further expansion and progress.
The writer is a research fellow and trade expert
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