• Does the policy define the targets to be achieved in the 15 years horizon of the policy?
• “Becoming a source of revenue generation for the government is not an objective of the policy. Then why bidding for the licence as opposed to a beauty contest?”
  

(iii) The main objective of the policy should have been the increased teledensity and based on teleaccessibility and teleaffordability.

(iv) The targets set by the policy include cellular coverage of 95 percent urban and 30 percent rural population. It is estimated that there would be a potential demand of approximately 25 million cellular phones by 2018.

(v) Seventy percent of all tehsil headquarters will be covered. This means covering of 50.22 million populations by 2008 and 65.90 million by 2018. These are unrealistic targets.

(vi) Mobile operators will be obliged to provide 70 percent coverage of tehsils. In 208 tehsils, 1000 (plus) cellsites will have to be established during the next four years. This means one cellsite every 35 hours. This is a very tall and unrealistic target. This is also against the principle of return on investment (ROI).

(vii) A survey shows that on the average, a person can only spare 30 percent of his/her income for telecommunication needs. With the per capita income of $495, a person can spare only $1.37 for all telecom services. When every third person in Pakistan lives below the poverty line, will it possible to have 25 million subscribers of cellular phones by the next about 15 years?

(viii) The existing operators are with 2 X 10 MHz bandwidth. The two new operators will have 2 X 13 MHz bandwidth. GSM technology has been favored and the new CDMA operators will be at a disadvantage.

(ix) A significantly high price has been set for third generation services spectrum auction.

3G (3rd Generation Services Spectrum Auction)
Base Case: United Kingdom
Total Cellphone Users:	49.6 Million
Cellular Teledensity:	84.07%
Number of Active 3G Licenses:	3
Total number of active 3G users:	144,000
Ratio of 3G/Cellular Users:	2.9%
Pakistan (Forecast)
Total cellphone users in 2006:	7.5 Million
Ratio of 3G/Cellular Users:	2.9%o
Total 3G Users:	21,775
3GLicense Fee ($50M)/user:	$2297
Does setting such a high reserve price make any sense???·
CDMA does not need separate spectrum to offer 3G Services
Source: ITU, 3GP

(x) New mobile cellular licences will be for 15 years. Existing mobile licencees will not be allowed to bid for new licences.

(xi) PTA should specify anti-competitive provisions. No operator should be allowed to offer any discount.

(xii) Obligations of significant market power (SMP) operators should be specified.

(xiii) The PTA should establish and enforce specific directives dealing with infrastructure sharing and national roaming.

(xiv) Mobile operators will pay 1.5 percent of their gross revenue minus inter-operator and PTA mandated payments towards a universal service obligation fund (USF). This fund will be used to provide service to rural areas. However, no guideline regarding eligibility of USF payment has been set.

(xv) Wireless local loop (WLL) operators will have the right to offer limited mobility and they will be eligible to receive access promotion contribution (APC). But, the mobile operators will not receive APC. This discrimination is against the principle of fair competition.

(xvi) The policy sets benchmark for operators to achieve. This is a significant strength of the policy.

(xvii) Another major strength of the policy is the mobile number portability (MNP). PTA will set the process rolling to achieve MNP within two years.

(xviii) Mobile operators will be eligible for local loop and long distance international licences. This is a fair provision in the policy.

• What is the objective of telecom policy vs. mobile cellular policy?
• What is the difference between role of policy vs. regulation?
• How to draw lines between role of ministry vs. regulator?
• Should policy address overall macro-economic issues or cover micro-level sector-specific issues?
• Is there really a need for Mobile-Cellular policy, after all?

2. The following were the main points of his presentation:

(i) Public policy for private sector is a comprehensive goal – setting exercise to identify economic and social imperatives to be achieved in a particular sector. Therefore, Telecom policy must establish guiding principles for sector development using a macro-policy-instrument as done by Malaysia and India. Where as the goal of Regulation is Market Management by defining the rules of doing business, rights and obligations, controlling market entry and exists.

(ii) Keeping in-view the De-Regulation Policy 2003 and Mobile Cellular Policy 2004 the role/jurisdiction of regulator and the ministry as a policy maker has become unclear. Also, the inter-ministerial framework for cooperation is missing in the policy addressing hot issues of competition, convergence, labour, social security, disaster management, dispute settlement, trade and tariff – which in India has been done through cooperation of other government ministries and agencies.

(iii) The focus of this policy is of micro-level, covering licensing issues, spectrum allocation, migration from 2G to 3G and other issues which should have been promulgated by the PTA as rules of doing business in mobile sector.

(iv) Regulation

• Develops level playing field in case of monopoly
• Provides a market making mechanism in the absence of well defined rules and regulations
• Is a legal instrument to prevent economic failure resulting in Market Abuse!
  

(v) Paradoxically, just as economic regulation was born of market failure…. Deregulation was born of regulatory failure.

(vi) Policy and regulation

Policy	Regulation
Public Welfare Objectives	Public Welfare Objectives
Provides Sector-specific vision	Sector specific
Identifies Priority areas	Provides a mechanism for Market Management
Promotes private participation	Consumer Choice at affordable prices
Promotes investment	Encourages Competition
Promotes Employment	Is a legal instrument
Consolidate with overall economic policy	Provides well defined Rules and Regulations
Protect National Interest	Ensues level playing field for all
Provides Certainty and clarity of goals	Controls barriers to entry and exit
Consolidate with Multilateral and bilateral commitments	Limits # of players
Subject to change in Political Leadership	Protects Domestic Industry
Industry specific	Subject to change in Law or legislation
General	Subject to market conditions and changes technology changes
Promulgated by the Ministry	Industry specific
	Explicitly identified modus operandi
	The Regulator runs the show

(vii) Whereas Pakistan has issued three different policies on the telecom sector (IT Policy and Action Plan 2000, Telecom Deregulation Policy 2003, Mobile Cellular Policy 2004), India issued a National Telecom Policy 1994 (updated in 1999) and Malaysia framed one National Telecom Policy 1994 – 2020.

Pakistan	India	Malaysia
Telecom & Mobile Sector Policies Covers Spectrum allocation, licensing process, QoS, licensing fees, interconnection, migration process, R&D, USF, APC	Single Policy Sets objectives General guiding principles	Single Policy Mission Macro & Micro Objectives Strategy

Whereas, Policy should provide general guiding principles, regulator has to define the modalities of various sectors of telecom.

Experience shows that over-commitment has always backfired.

(viii)

Key Areas	Pakistan	India
Policy Maker	MoIT, IT & Telecom Division	Telecom Commission, Ministry of Communications & IT
Regulator	PTA	TRAI
Licensor	PTA	Department of Telecom, India
Licensing Regime	N.A	Unified Telecom Licensing (UTL)
Telecom Policy	Telecom Policy 2003 Mobile Cellular Policy 2004	NTP 1999
Dispute Resolution	- NA -	Telecom Dispute Settlement and Appellate Tribunal
Alternate Dispute Resolution & Advocacy	Proposed APTOP by Mr. Salman Ansari	Cellular Operators Association of India, GSM India etc.
Spectrum Management Agency	FAB under PTA	Wireless Planning & Coordination Wing (WPC) under DoT
Spectrum Plan	Proposed under Telecom Policy	Nation Frequency Allocation Plan 2002 (NFAP)
Advisory	- NA -	Group on Telecom, Group on Telecom & IT Convergence Telecom Engineering Center
Standardization	-NA- Once CTRL, PTCL	Telecom Engineering Center (TEC)
Consultancy Services	-NA- Out source	Telecom Consultants India Ltd, DoT as Worlds leading telecom consultancy service providers to over 50 countries
Telecom technology development	-NA- Once CTI, PTCL	Center for Development of Telematics, Telecom Technology Center, GoI
Telecom Equipment	- NA - Once Telephone Industries of Pakistan (TIP)	Indian Telephone Industries Limited (ITI)
USO	USF 1.5% of Gross Rev.	USF 5% of AGR
R&D	Fund 0.5% of Gross Rev.	Contribution as required by TRAI time-to-time
APC	NA for Cellular Operators	Mutual Negotiation with ILD operator
CPP	Yes	Yes
Grant of License	Auction	Tender

Mergers & Acquisitions	- NA -	Competition Bill 2001
Convergence	- NA -	Convergence Bill 2000
License Fee	25% Down-payment + EMI	12%, 10% 8% of Annual Gross Revenue (AGR) for Circles A, B, C, respectively
Spectrum Charges	Price per MHz per Annum	2% of AGR for 4.4 MHz, or 3% of AGR for 6.2 MHz
Length of License	Initial 20 yrs Extended for 15 yrs	Initial 20 yrs Extended for 10 yrs
Accounting Separation	Yes	Yes, Accounting Separation System
Migration to 3G	Auction of Spectrum	- NA -
SMP	if > 25%	If > 30%
QoS	Air Interface Blocking <= 4% - 2% Call Completion @ > 96% - 98% Call Connection Time <= 7-5 sec Call Quality MOS 3 Score > 3 Network DownTime <2% -1% per month Site Down Time < 48-24 Hrs	Call Success @ > 99% Service Access Delay 9-20 sec Call Drop @ <3.0% Call Quality > 95%
Sharing of Infrastructure	Allowed	Allowed
Roll Out requirements	70% of Tehsil H/Qtrs in 4 yrs with min. of 10% Tehsil coverage in all Provinces
Performance Bond	USD 15 Million	Financial Bank Guarantee (FBG) of amount equal to Rs. 50, 25 and 15 Crores for category ‘A' ‘B' & ‘C' service areas
MVNO	Allowed by 2006	Allowed under ULS
Mobile Number Portability	Yes	No

(ix) Liberalization process

Phase	Description	Characteristics
I	Monopoly	Services are supplied by one firm and regulation is concerned with the prevention of monopoly abuse in retail markets.
II	Monopoly and Competition (Regulation)	Competition is gradually introduced into some or all markets and regulation focuses on: monopoly abuse in both retail and interconnect markets by dominant incumbents, emerging competition issues, and public service obligations.
III	Competition (No. or Minimum Regulation)	Here competition is extensive and increasingly effective in some or all markets. Some light-handed regulation is needed, as in other competitive markets, to ensure fair trading practices and maintenance of public service objectives.

(x) Roadmap to competition

Regulatory Intensity
	Timeframe to reach market maturity

(xii) Yousaf Haroon also briefed the participants on Indian and Malaysian telecom policies.

(xii) Conclusions Drawn

• The policy is more of a Mobile-Cellular Licensing-Policy than a Sector-Policy. To call it a “Mobile-Cellular Telecom Policy” is misleading. Contrary, to this India has a single-telecom-sector policy and Unified Licensing Regime.
• The ideal goal of any policy is to ensure welfare of the society which can ideally be achieved through achieving fully competitive market with no barriers to entry, which this policy fails to address by providing a protective cushion to existing players and new entrants by limiting competition in a number of ways.
• The policy is silent over critical issues of convergence.
• The policy is silent on competition issues such as Mergers & Acquisitions.
• A number of services trade related issues under WTO are not covered in the policy.
• There is no dispute settlement mechanism in case of an anomaly between policy and regulation.

3. Discussion

The following points came out during the discussion session:

(i) Bidders for new mobile cellular licences and in some respects the incumbent licence holders will be governed by the present policy. Therefore, it would be unfair to incorporate any changes in the policy during the on-going process. Besides, such policies should be given adequate time to show results. Five years is not a long time to test its outcomes.

(ii) In dynamic policies, there are always provisions for change. Any suggestion, that would benefit all stakeholders across the board should be incorporated rather than living with the status quo for the next five years.

(iii) Although the policy objectives are not specific, measurable, achievable, realistic and time bound and as such they should be classified as goals but, the policy contains very specific targets to be achieved.

(iv) The service providers need approval of the State Bank for making payments to foreign carriers with whom they have interconnect agreements. A blanket approval should be accorded for the life of the agreement or atleast for a period of one year.

(v) Since GSM operators have to make substantial payments to foreign carriers, therefore, they should be allowed to retain their entire earnings in foreign exchange rather than 35 per cent as allowed at present.

(vi) The telecom sector, including mobile cellular operations, will be classified as an industry. It was suggested that it should be classified as hi-tech industry.

(vii) The policy is well laid out and it has some significant strengths particularly good standards for quality service have been laid down.

(viii) The application of performance bond as laid down in para 6.2 of the policy needs to be further clarified particularly for the incumbent operators.

Recommendations

On the basis of discussion and the views expressed by the participants, SDPI makes the following recommendations for consideration by the government:

1. Although the government has good reasons for not making any changes in the policy for the next five years but such policies should have built in flexibility. Any suggestions, that would benefit all licencees, present and future, should be incorporated rather than maintaining the status quo for five years.

2. Classifying the telecom sector including the mobile cellular operations as an industry is under consideration of the government. It is suggested that it should be classified as high-tech industry.

3. To make payments to foreign operators for using their network services, the Pakistani mobile operators have agreements with a number of foreign operators. This requires monthly payments to foreign operators against their bills. Each payment requires approval of the State Bank of Pakistan on monthly basis. It is a cumbersome procedure which also causes delays. It is recommended that mobile operators be given approval on annual basis separately against each agreement. This approval can be given on estimated payments subject to adjustments at the end of the year.

4. The application of performance bond as laid down in paragraph 6.2 of the policy needs to be further clarified for the incumbent operators.

5. The policy requires coverage of 70 percent of all tehsils by the licencees. The target seems unrealistic and should be reviewed. Similarly, the potential demand of 25 million mobile phones by 2018 is not realistic.

6. When the PTA issues anti-competitive rules, it should be ensured that no licencee is allowed to offer any discount.

7. Mergers and acquisitions are now a common phenomena but the policy is silent on such issues. A suitable provision on this matter should be incorporated in the policy.

8. The PTA should establish and enforce specific directives dealing with infrastructure sharing and national roaming. The provision should apply to both old and new mobile operators.