The PTCL privatisation controversy

The proposed privatisation of PTCL has attracted a lot of public and media attention in the recent past. It is perfectly understandable that this be the case since telephones impact the lives of most citizens and PTCL is often viewed as the jewel in the crown of the State. From protest strikes to token walkouts in our houses of parliament, to swings in the stock prices, to editorials, interviews and news alerts on the media - it is all there to influence the eventual outcome.
Considering both the interest and magnitude of the impact of the privatisation decision on the various stakeholders of PTCL it is important that all the considerations are examined and understood. Among the many stakeholders of PTCL the most important are the public (phone users), the employees and the shareholders with the Government of Pakistan being the principal shareholder.
A good process should after giving due consideration to the conflicting interests produce an outcome that will be in the best interest of PTCL and Pakistan. Let us examine the most often cited questions and concerns together with my response.
(1) Why privatise a profitable State enterprise? It is correct that PTCL is a hugely profitable enterprise of the State. At this point we must ask ourselves why it has been so profitable when so many other State enterprises have not. One principal factor has been that PTCL was a monopoly or as they say the "only game in town". If you wanted a phone connection you had only one option and irrespective of the price tag, delays, quality of service you strived to get connected.
In this sort of an environment how could PTCL not make money. To be fair to PTCL employees, they too deserve credit, for they built a good network and unlike some of the other State utilities allowed most of the revenue to be recorded in the books of the company. However, with the Government's decision to deregulate the telecommunication industry the monopoly era has come to an end. What this means is that other companies are free to enter the market and offer their services.
The opening up of the sector has been a huge success for the public, partly due to policy and partly due to new technologies which make it possible for companies to leapfrog into the telecom arena and compete. Mobile phones and WLL technology are examples where in a very short period of time phone connections offered by the new companies are already twice as many as what PTCL achieved in 58 years since independence.
The important question is how will PTCL fare in the new hugely competitive environment. My assessment is that PTCL will have to recast itself if it is to remain profitable and be a significant service provider. If it remains a commercial organisation of the State, it will not be allowed to change at the speed required and it will find it exceedingly difficult to respond to competition and remain profitable. I say this from experience of having served on several public sector boards.
Cumbersome procedures, lack of trust, interference, pushing non-commercial considerations etc all get in the way of quick and merit-based decision-making.
A point that is often made is that the State should concentrate on selling loss-making enterprises rather than the profitable ones. As if to say that buyers are oblivious of the situation. Should it not be granted that the buyers and the sellers do take into consideration the realities on the ground in pricing privatisation transactions.
There is likely to be much more participation and competition for profitable enterprises than in loss-making ones so it is a better strategy to sell when the enterprise is still profitable.
(2) Why sell it to foreigners? The government would have been happy to sell PTCL to local investors. For that to have happened there should have been an expression of interest from local investors which did not come about. The large value of the transaction and possibly the absence of telecom expertise in local companies is what perhaps did not evoke a response to the well-publicised invitation to bid.
(3) Foreigners will repatriate profit and compromise national security. The scheme of privatisation is to sell 26% of PTCL shares to a private investor together with management rights. For starters the investor will have to bring in sizable funds into the country to buy shares and only then be entitled to taking out 26% of the profit. The remaining 74% of the profit will belong to the government and the other local investors. The expectation is that in private hands the company will be much more efficient and responsive to the market and as a consequence it will make more profit.
The higher profit will first generate more income tax for the government and then entitle it to increased dividend income from the bigger earnings pie. Thus successful privatisation should make the government a net gainer.
The national security aspects of privatisation have been examined. Measures already in place plus new measures contemplated and provided in the privatisation transaction will meet national security requirements. Besides, in times of national emergencies the government will have the right to institute additional safeguards. The adequacy of the safe guards have been considered at the highest level.
(4) Privatisation will cause job layoffs and add to the country's unemployment. A very large number (almost 70% ) of PTCL employees are civil servants and their terms of employment are protected under law similar to all other government servants. Employees who joined the post in 1996 are governed under separate rules which are similar to protection clauses provided in most commercial organisations. Privatisation will not alter the terms of either category of employees.
Telecom is a high growth sector of our economy and it requires skilled personnel to achieve it's potential. No company would want to let go of it's value adding people in such a scenario. It is expected that to the extent PTCL has surplus manpower the new buyer may make adjustments by offering schemes such as Voluntary Separation Schemes (VSS) or other fair and equitable programs consistent with applicable laws.
The vast majority of the employees can expect a much more dynamic and paying environment in the pursuit of their careers with the company. Those who leave can expect a fair compensation.
(5) Private enterprise will only work for profit and not serve backward areas and other social causes. The telecom policy of the government has built in sufficient safeguards to ensure that telecom facilities reach the remotest areas of the country. A Universal Service Fund to be contributed by Telecom companies has been created under law to help meet this objective. Similarly, other development needs such as R and D etc have also been provided for in policy with regular and mandatory inflow of sizeable funds from telecom companies to finance such activities.
(6) PTCL in private hands will not allow other private enterprises to get established. They will stifle competition. To provide a level playingfield to all telecom players the Government has set up an independent regulatory authority. This body is fully functional and is playing an important role in encouraging new players to enter the market and making sure they do not encounter unfair competition from existing telecom players.
Major Companies such as PTCL have been declared "Significant Market Players" (SMP) and are subjected to additional checks and regulation. Further, the rules of interconnection between the established players and the new companies have also been framed which are extremely beneficial to the new players. These measures will greatly facilitate competition and protect the interest of the smaller or new players.
Views on PTCL's privatisation can stem from an ideological belief or be based on incomplete information or a desire to protect a vested interest. It is the responsibility of decision-makers to examine each facet and then be bold in arriving at a decision that will best serve the interest of PTCL and Pakistan. From my vantage point I have no doubt privatisation is the way to go, to secure the future of the company, to add real value to the economy and to protect the interest of capable and hard working employees of PTCL.
All through the decade of the 90's PTCL's privatisation has been on the cards but without a breakthrough. The present timing is opportune as there is considerable interest from a good set of regional telecom companies who have completed their due diligence and are ready to bid. The time is now. We must not allow this window of opportunity to lapse.
(The writer is Chairman, PTCL Board of Directors.)