Illegal sale of SIMs: PTA slaps Rs 100 million fine on leading cellular firm

The Pakistan Telecommunication Authority (PTA) has imposed a huge fine of Rs100 million on a leading cellular company for contraventions and non-compliance of regulatory laws including sale of grey SIMs, unauthorized sale of SIMs through kiosks activities and non-serious conduct of the licensee in terms of implementation of minimum sale price for a mobile SIM.
The panel comprising Chairman PTA Maj Gen Amir Azeem Bajwa (retired), Member (Compliance and Enforcement) Dr Khawar Siddique Khokhar, and Member (Finance) Muhammad Naveed passed the enforcement order against the cellular company.
The PTA observed that keeping in view the seriousness of the issue and national security implications, the authority several times informed the licensee with regards to the violations on its part and directed to take tangible measures against the franchises/retailers/sellers involved in selling/activating SIMs fraudulently, which were purportedly being used for illegal activities.
These communications were issued to the licensee on a monthly basis for blocking of SIMs being used in grey trafficking. In addition, a survey was carried out by the authority in December, 2019 and it was revealed that the licensee is not selling SIMs as per applicable law particularly the PTA's determination.
It was also observed that the licensee, its franchisee/retailers were involved in door-to-door/kiosks activity without prior approval of the authority as well as, were selling SIMs below Rs200 as determined by the authority.
As a consequence, the authority issued show cause notice dated 10th February, 2020 for these contraventions. The licensee submitted an interim reply and later submitted its final response to the notice, and stated that CMPak has been abiding by the terms of subscribers regulations and SOP, which is evident from its efforts wherein a thorough check was run against 176 retailer ID's, and consequently 76 warning letters were issued along with levying of penalties to franchise holders, who were found to be operating contrary to the regulations and the SOP, which was followed by termination of two Franchise Agreements.
That in compliance of the SOP and regulations, SIMs issued in contravention to the regulations and SOP were blocked, and action to curb issuance of illegal SIMs is still operational.
That on 25-09-2018, instructions were issued to all franchise holders vis-à-vis their activities being monitored, so as to ensure that the franchise is not involved in any fraudulent activity, including but not limited to grey trafficking, fake activations, document forging being in contravention to SOP and regulations.
After careful examination of the contents, the licensee's replies to the notice including verbal submissions made during hearing and written arguments submitted vide letter dated 10th May, 2020, findings of the authority are as under: the licensee submitted that in aggregate action has been taken against 183 franchises/retailers for violating regulations, SOP and the determination.
As per the licensee's submissions, a total of 176 retailers had been terminated and 76 franchises had been warned or fined for an amount varying from Rs5,000 to Rs150,000. Furthermore, the licensee has also submitted as documentary evidence two letters showing termination of franchises for violation.
In this connection, the central question, which needs to be determined, is whether the licensee has taken adequate steps commensurate with the seriousness of the issue. Unfortunately, the answer to this question is in the negative.
Use of grey SIMs in illegal activities and heinous crimes is a serious national security concern. Moreover, the menace of grey SIMs and trafficking has been causing immense loss to the national exchequer on regular basis.
More so, such activities also hamper the legitimate business of other license holders. The authority in order to curb this problem has taken and is continuously striving for implementing regulatory provisions to bring the offenders to justice.
It is appropriate at this juncture to highlight that the authority has issued several reminders to the licensee on monthly basis, informing the licensee about the sale of SIMs being used for illegal activities and grey trafficking, however, despite the continuous reminders, the licensee took action only against the sale channels pointed out by the PTA.
Moreover, despite clear instructions/deadlines, the PTA was informed about these actions only once and thereafter, only when the instant show cause notice was issued.
In addition, the lists of 118 unique franchisees shared by the licensee shows that "no action has been taken" against 23 franchisees despite the fact that they were found involved in selling SIMs used in grey trafficking.
The practice in essence adopted by the licensee against sale and issuance of grey SIMs has been "reactive" rather than being a "proactive".
The licensee has paid inadequate attention to the fact that sale of grey SIMs can have profound ramifications for the subscribers and other stakeholders that can manifest in the form of terrorism, concerns for national security, financial fraud, defamation, cyber fraud and numerous other illegal activities.
Furthermore, the record also highlights that action was taken against a franchisee in the month of December 2019, following a lapse of three months after the PTA's first warning letter.
Further, a franchise of the licensee was terminated following a raid conducted by the Federal Investigation Agency (FIA) on 25th July 2019. This is one of the instances that reflects that the licensee had failed to take appropriate action on its own accord, and rather he was forced to terminate the franchise on recovery of pre-activated SIMs.
In addition, there are a number of franchisees, which have been found involved in selling of SIMs purportedly to be used in grey traffic multiple times (as shown below) but action on part of the licensee was negligible.
The PTA observed that the overall stance of the licensee as submitted in his reply and written submission make it evident that it has acted in a callous, negligent and irresponsive manner.
The licensee failed to pay any heed to the seriousness of the situation and the rectifying actions taken by it are insubstantial and a mere eyewash.
Another important question that begs the indulgence of the authority is the argument raised by licensee for not being able to exercise proper control over its franchisee/retailers.
This notion is based on unfounded and perverse logic. The franchisee/retailers of the licensee are operating under subsisting franchisee agreements and are acting as agents of the licensee.
The conduct of the licensee shows its inability to implement the procedure(s) for sale of SIMs.
Whereas, in accordance with regulation 4 (4) of the regulations any SIM(s) sold by any means shall be the sole responsibility of the operators. Furthermore, as per clause 4.2 of Appendix-B of Pakistan Telecommunication Rules 2000 read with Rule 7(4) of the said Rules the licensee, is at liberty to enter into contract or arrangements for the purposes or exercising its rights under the license in its absolute discretion without any reference to the Authority.
Therefore, in these circumstances, it is the primary responsibility of the licensee to ensure that its franchisee/retailers are in compliance with the applicable regulatory regime, regulations, SOPs and determinations of the authority.
With regards to conducting door-to-door kiosk activities without prior approval of the authority, the licensee did not address this contravention in his responses to the show cause notice.
In the course of the hearing, the licensee however submitted that no data/information had been received identifying the area in which activities were being carried out.
This assertion is incorrect on the premise that the licensee vide the PTA's letter dated 14th February 2020 was duly informed about areas in which door to door kiosk activities were being carried out by the licensee without prior approval of the authority.
These areas had been identified following a survey conducted by the authority in December 2019. Later on, the licensee in its written submission denied the allegation related to door-to-door/kiosk activity and stated that kiosk activity was carried out with approval obtained from the PTA, however, no specific denial or justification with regard to areas identified through said letter and shared during hearing has yet been provided.