The Competition Commission of Pakistan (CCP) is currently finalising the PTCL and Telenor merger, which is possibly one of the most complicated cases of the country’s corporate sector history; the outcome will have far-reaching implications for Pakistan’s telecommunications landscape.

CCP’s main task would be to protect the rights of all concerned, including the merging parties. The management of PTCL and Telenor have the privilege to merge their entities, but a ‘delicate balancing act’ is required to safeguard the interests of other players in the sector, which will eventually guarantee the protection of the rights of telecom and internet consumers.

The CCP was established under the Competition Ordinance, 2007 — the upgraded and more powerful reincarnation of the Monopoly Control Authority (MCA). Another key merger allowed by the Commission was the acquisition of Warid Telecom by Mobilink in 2016, resulting in the establishment of the largest teleco in the country — Jazz.

However, the PTCL acquisition of Telenor Pakistan is a much more complicated case because it is not a mere merger of the spectrum and the subscribers of Ufone with Telenor Pakistan. As a result of the merger, the PTCL group will have a dominant position over the upstream, midstream and downstream segments, as well as the retail segments in the telecom sector.

The PTCL-Telenor merger could lead to a monopoly and possibly drive out smaller players

Unlike the Mobilink-Warid merger, the Ufone-Telenor Pakistan merger may allow PTCL to establish its own subsidiaries to offer lower rates in several segments such as call termination, internet and data. This may make it harder for other long-distance & international (LDI) operators and internet service providers (ISPs) to compete.

This is possible as PTCL has the largest share in internet submarine cables and is the key provider of internet to almost all ISPs at wholesale rates. It also has the largest landline network; therefore, its LDI has a significant volume of business, and after the merger, the LDI and data charges to the merged teleco could be lowered through its own subsidiary.

There are around 20 LDI companies operating in the country, and PTCL has around 48 per cent LDI market share.

The CCP has held five hearings from September 30 to October 24, 2024, for the phase-II review of the merger application, inviting not only the stakeholders to present their views but also media representatives to observe the proceedings.

PTCL, represented by the former chairperson CCP Rahat Kaunain, advocated for the benefits of consolidation and enhanced competition in the Pakistani market, while the opponents were mainly Wateen Telecom, Jazz and Zong. The hearings were presided over by a panel comprising Dr Kabir Ahmed Sidhu, Chairman of CCP, Salman Amin, member of CCP and Abdul Rashid Sheikh, member of CCP.

During the phase-I review held earlier, the CCP analysed significant concerns about market dominance stemming from the merger, and to address these issues, the Commission expanded its inquiry to assess the implications in various relevant product markets.

These included the retail LDI fixed-line telecommunication market, retail mobile telecommunication market, wholesale domestic leased lines, wholesale IP bandwidth and individual mobile/fixed interconnect services.

The phase II review focused on understanding how the merger could alter the competitive landscape in the telecom sector, and the key questions included market power, consumer impact and long-term market dynamics after the merger.

PTCL argued that the merger would enhance operational efficiency and spur economic growth and innovation within the telecom sector, as the combined resources of both the merged telecos will help compete with dominant players, such as Jazz, which currently leads in both subscriber base and revenue.

Currently, Jazz is the market leader among the telecom operators in the country, with almost 37pc of market share. After the merger of Telenor with Ufone, the joint presence of the company will be around 36.5pc of the total market share, and Zong will be left with 25.6pc of the total telecom consumers in Pakistan.

The main opposition to the merger was by Wateen Telecom, demanding the CCP to scrutinise the impact on various submarkets, particularly in infrastructure services.

They expressed fears that the merger could lead to a monopoly in the midstream sector, such as inbound voice services, where PTCL’s existing market dominance might stifle competition. Wateen expressed fears that PTCL will gradually end all the smaller competitors in the LDI and other segments.

Incidentally, Wateen, too, failed to press their point with relevant examples, and they presented the case Brown Shoe Co. v. United States, 1962, where the district court found that a merger would establish a manufacturer-retailer relationship and harm the interests of the competitors. However, the PTCL legal team countered this argument strongly.

The much more pertinent case related to the Ufone-Telenor merger is of the Rockefeller family’s ‘Standard Oil’, who controlled almost all oil production, processing, marketing, and transportation in the United States from 1870 to 1911 through mergers and acquisitions. However, in 1911, the US government, under the Sherman Antitrust Act of 1890, ordered the management of the company to divest itself and 33 oil companies were established out of that holding.

The Commission’s decision will ultimately shape the future of telecommunications in Pakistan; it could reinforce the importance of vigilant regulation and promote healthy competition or lead to the establishment of another dominant player like other state-owned enterprises.

Published in Dawn, The Business and Finance Weekly, November 11th, 2024