On the directions of Islamabad High Court, the Competition Commission of Pakistan (CCP) has passed an order deciding that the show cause notice issued to a top telecom company for abuse of its dominant position and, prima facie, violation of the Section 3 of the Competition Act, 2010 is maintainable and will continue in accordance with the law.
According to details of the case, the top integrated information communication technology (ICT) company of Pakistan had filed a writ petition before the Islamabad High Court and proceedings pending before the Commission were suspended vide order dated June 28, 2012. However, Islamabad High Court vide its order dated November 22, 2017 allowed the CCP to proceed into the matter and the writ petition was disposed of by the court vide its order dated January 22, 2018 with the direction to decide the question of jurisdiction and maintainability by way of preliminary determination.
The background of the issue revealed that CCP had issued the show cause notice on the recommendations of its enquiry report that determined that the telecom company was restricting and reducing competition in the market.
The enquiry report had concluded that the telecom company through the practice of margin squeeze had made the market for provision of broadband services through Digital Subscriber Line (DSL) technology uncompetitive and prohibitive.
The telecom company had prevented, restricted, reduced and distorted the competition in the market for provision of broadband services through the DSL technology, said the enquiry report.
The CCP conducted the inquiry on a formal complaint filed by Micronet Broadband Limited, LinkDotNet Telecom Limited and Nexlinx Limited, alleging that the telecom company has abused its dominant position in the market for the provision of the DSL services by being involved in the practice of predatory pricing and refusal to deal.
According to the inquiry report, the relevant product market has been divided into the upstream market for access to the copper infrastructure and the downstream market for the provision of broadband services through the DSL technology. The relevant geographic market for both products has been determined to be the whole of Pakistan.
According to the inquiry report, the telecom company having a nationwide copper infrastructure holds a dominant position in the upstream market for access to copper infrastructure, which is an essential input for the downstream market.
Based on the findings of cost analysis conducted by the enquiry officers, the telecom company being a vertically integrated incumbent, through pricing for access to its copper infrastructure, has reduced and squeezed the margins in the downstream retail DSL market to an extent that an equally efficient competitor cannot operate profitably.
The findings of the inquiry report reveal that this margin squeeze by the company through low retail prices has gradually reduced profit margins of the other retail operators which, as per their financial statements, are incurring losses.
Since company's entry in the DSL retail market, the number of total service providers has reduced from 11 to six and no new player has entered the market, an indication that the telecom company is violating its dominant position in the relevant market, said the CCP.
The enquiry report stated that generally lower tariffs in the retail market will be regarded as beneficial for customers; however, in this case lower retail tariffs have led to competitors being driven out of the market and may in the long run lead to creation of a monopolistic situation; thus, leaving the consumers at the mercy of single dominant player who could exploit the consumers.
Subsequent to the initiation of the enquiry, the complainants filed an application dated March 7, 2011 for withdrawal of the complaint stating that the complaint was filed on the basis of a determination of the Pakistan Telecommunication Authority dated July 15, 2010 whereby the telecom company was declared as significant market player in the digital subscriber line (DSL) internet market. However, this determination was suspended by the high court in an appeal filed by company in August 2010 and is still pending. Furthermore, the complainants submitted that one of the reliefs sought through the complaint was that company be directed to separate its accounts for the DSL and other services and it is ambiguous to the complainants whether the CCP has the power to order such separation of accounts. Therefore, the complainants wished to file a complaint before the PTA.
In its written reply to the CCP's show cause notice on January 29, 2018, the telecom company denied its involvement in anti-competitive practices through any agreements and stated that the PTA with reference to the instant complaint filed by the complainants after they withdrew their complaints filed with the CCP, gave its determination and disposed of the matter on the grounds that company would provide separated accounts for broadband services, in addition to services already covered in Accounting Separation Regulations/Guidelines, 2007.
"The Commission continued its proceedings under the act whereas the PTA being the competent authority within their jurisdiction for the matter has already passed a determination," the company stated.
"The fact that the Commission is not a statutory regulator of telecom matters in Pakistan and nor was it required by law to initiate such an inquiry and is clearly usurping the functions and powers available solely to the PTA under the PTRA. The Commission is exceeding its jurisdiction in continuing the hearing, because the jurisdiction solely vests in PTA, who has been specifically entrusted by the legislator to regulate competition in the telecommunication sector and protect consumer rights of telecommunication subscribers," the telecom company said.
One of the complainants filed a rejoinder to telecom company's reply dated 29 January 2018 stating: "When the CCP issued show cause notices to fourteen LDI operators, some LDI operators secured a status quo order from the Sindh High Court, Karachi, on March 9, 2013, on the ground, inter alia, that only PTA has the jurisdiction to adjudicate on that issue. On the institution of contempt proceedings, the Supreme Court vacated the status quo order and directed all the parties to appear before the Commission.
"In the matter of ICH before the Commission, LDI operators contended that the jurisdiction is with the PTA to the exclusion of the Commission. Rejecting these contentions, the Commission held that the job of PTA is to devise appropriate ex ante policies, standards, regulations and licensing conditions that foster or encourage competition among the licensees and provide for a level playing field. Furthermore, Article 18(a) of the Constitution also distinguishes the regulation of any trade and profession through a licensing system, whose role in the telecom sector has been entrusted to PTA under the PTRA whereas the regulation of trade, commerce or industry in the interest of free competition as stipulated in Article 18(b) is a mandate that is entrusted to the Commission under the Act. There is no conflict between the PTRA and the Act and even in such is assumed, the provision of the Act prevails over the PTRA."
Upon receipt of the written replies by the parties to the instant proceedings and in compliance with the Orders dated 22 November 2017 and 22 January 2018 of the Islamabad High Court in the writ petition, hearings were held in the matter on January 18, 2018 and March 8, 2018. The parties mainly reiterated the submissions made through their written replies.
The CCP's order stated that though the PTRA has a general provision vis-à-vis the regulation of competition, which was inserted in 2006, however, no specific provision is available which provides for prohibition of any anti-competitive behavior or a remedy against such a situation.
On the other hand, the legislature in all its wisdom has deliberately entrusted the Commission with the exclusive mandate of regulating anticompetitive conduct, by using the language "to provide for free competition in all spheres of commercial and economic activity to enhance economic efficiency and to protect consumers from anti-competitive behavior" and thereafter provided for prohibitions under Chapter II of the Act (Sections 3 to ii) and consequent penalties for violating Chapter II of the Act under Section 38 of the Act.
While citing various cases, the Order held that whenever there is a special law, it will override the general law and further even if there are two parallel laws, even then law which is latter in time would prevail.
"Hence, we have no doubt in holding that the objections of telecom company in this regard are not well founded and the Commission possesses the exclusive jurisdiction under the Act to take cognizance of the alleged conduct by the telecom company."
The Order further stated, "Despite the request of withdrawal by the complainant during the enquiry as well as the request made by the complainants during the hearing held on March 8, 2018, we shall continue with the proceedings in the matter strictly in accordance with the provisions of the Act, however, the complainants are allowed to withdraw themselves from the proceedings."
Accordingly, the proceedings before Commission in the matter of show cause notice bearing No. 70/2012 dated June 14, 2012 issued to the telecom company for prima facie violation under Section 3 of the Act are maintainable and shall continue in accordance with law.