House of the Rising Sums: PTA ordered to shut down ICH after tariff hikes increase grey traffic

19 Jun 2014

Pakistan’s Ministry of Information Technology and Telecom (MoITT) has issued a directive to the Pakistan Telecommunication Authority (PTA) to discontinue the controversial International Clearing House (ICH) scheme, under which all incoming international traffic was routed through a single gateway managed by the incumbent Pakistan Telecommunication Company Ltd (PTCL). Effective from 1 August 2014, the policy directive establishing the ICH is withdrawn and the PTA’s powers regarding the setting of the Approved Settlement Rate (ASR), including the Access Promotion Contribution (APC) are restored and the APC component is set at zero for the time being to help kick-start competition.

As noted by TeleGeography’s GlobalComms Database, the ICH policy was introduced in August 2012 as a means to fight grey traffic and thereby increase revenues for state coffers. The strategy was widely criticised for eliminating competition in the Long Distance International (LDI) segment, sparking a substantial increase in tariffs. Further, the officials responsible for the creation of the ICH policy have been accused of taking bribes in relation to the scheme. In its press release, the MoITT acknowledged that the ICH scheme exacerbated the issue of grey traffic rather than easing it, noting that it ‘led to [an] exponential increase in call rates for overseas Pakistanis and high volumes of grey traffic…Due to this increase [in calling rates], net incoming calls were also reduced substantially and were converted either to over-the-top [OTT] services or to grey and illegal channels, which bypass [the] legitimate, licensed gateway.’

Similarly, the ICH strategy increased revenues to LDI operators, but reduced the amount collected by the government. The Competition Commission of Pakistan (CCP) had noted in early 2013 that the implementation of the ICH had led to a 70% drop in international voice traffic and a 31% decrease in taxes, but a 308% increase in revenues for LDI operators. The MoITT has partly conceded this failure, but claims to have taken a ‘very bold step’ in setting the APC at zero, as the government will ‘take a significant financial hit in terms of revenues generated through this mechanism.’ The MoITT expects the deregulation of the segment to foster a healthier, competitive market, which will in turn lead to a reduction in prices by around PKR6-PKR8 (USD0.06-USD0.08).