It is most likely that International Clearing House (ICH) will be established from October 1, in accordance with the policy directive issued by Ministry of Information Technology (MoIT), analysts said. "Although CCP has expressed reservations against the idea in its policy note to MoIT and PTA, we believe concerns of the commission will be clarified by the Ministry", Zeeshan Afzal, an analyst at Topline Securities said.
On August 13, MoIT issued policy directive to establish ICH exchange for incoming international calls, he said. In light of the directive, PTCL and other LDI operators have signed ICH exchange agreement to channel all incoming international traffic from a unified gateway.
According to the agreement, PTCL will manage the gateway while all revenues will be shared by LDIs. Further, PTA has notified Approved Settlement Rate (ASR) at USc8.8 per minute, LDI share USc5.9 per minute and Access Promotion charges (APC) USc2.9 per minute to be implemented from October 1. "Our discussion also reveals that the rate has been agreed upon, however, fine-tuning of operational modalities would take 2-3 months and all LDI operators will keep channelling incoming international traffic through current set-up during this period", he said.
He said that cartelisation, quota allocation and distorting free competition were untenable under Competition Act 2010. In this regard CCP barred LDIs, on February 8, to enter into such agreement without seeking exemption from CCP. However, this time LDIs are just complying with the federal government order to establish ICH as directive has been issued by MoIT.
"As per our discussion with the experts, CCP can not issue orders to government while it can even provide exemption, if seek. We believe that commission has done its part by issuing advisory note to the MoIT and any direct action against LDIs is less probable as whole ICH is under the umbrella of government", he said. However, in this regard judicial activism may prove to be legal hindrance.
The steep increase in termination rates is likely to provide incentive for grey traffickers leading to drop in total industry minutes. "The industry sources reveal that average 1-1.2 billion minutes are terminated in Pakistan every month, while we expect the industry volumes to drop by 30 percent after the establishment of ICH", he said.
"Given 50 percent market share of PTCL, in our base case annualised EPS impact would be Rs 3.16, assuming 30 percent increase in grey traffic", he said. Further, if incoming minutes drop by 50 percent the incremental EPS impact would be Rs 2.32, he added.
"Our FY13 EPS for PTCL is Rs 3.6 which includes one time VSS, and impact of decline in legal trafficking", he said. In FY12, the company posted EPS of Rs 2.24 (4Q EPS Rs 0.87). Sharp increase in 4QFY12 earnings is primarily due to one time positive tax adjustment of approx Re 0.24 and realisation of Ufone dividend.