The News
September 4, 1997

Globalisation of trade will hit Pakistan on another front. Within the
framework of the World Trade Organisation's international agreements, a
recently passed law by the US will prohibit its telephone companies to pay
above a certain limit to the state telephone monopolies of other countries.
International telephone rates will be slashed substantially. Consequently,
Pakistan, getting 50 per cent of the revenues for incoming calls (about Rs 5
billion from the US only), will lose another significant source of revenues.
Temporarily such a loss will be disastrous for the country. However, in the
long run, it may force the country to streamline its operations and create a
friendly environment for the customers and businesses.

Telephone service charges are exceptionally excessive in Pakistan. Connection
charges, monthly fixed fees, charges for every call (even made to the next
door neighbour) and its exorbitant rates for inland and overseas calls make
it one of the most expensive services in the world. In comparison, in the US,
one the world's richest countries, new connections are free, unlimited local
calls are allowed for about $25 (Rs 1,000) and one can call anywhere within
the US for about Rs 6 per minute. Calls to most of the European countries
range from 20 to 30 cents (or Rs 8 to 12) and even calling the Far East does
not cost more than Rs 20 a minute. Ironically, calls to India, rates of which
was higher than Pakistan's, have been much lower for a long time: Rs 20 per
minute to India versus Rs 36 to Pakistan.

Given the low labour cost and internationally standardised equipment,
telephone charges in Pakistan should not be higher than the US where the
charges of a telephone repair mechanic, about $50 (or Rs 2,400) per hour, are
equal to a Pakistani mechanic's monthly salary. Therefore, it is beyond doubt
that PTCL, a state monopoly, does not determine its prices like other
regulated monopolies which are permitted to earn about 10 per cent profits on
its investments. On the contrary, Pakistan levies indirect taxes on the
consumers through PTCL tariffs. Overseas Pakistanis and foreign investors are
also forced to pay these indirect taxes. Domestic consumers may be
compensated in other ways (though doubtful) but expatriates or foreign
businesses do not get anything in return for paying such taxes.

The bulk of the foreign calls to Pakistan are made by expatriate Pakistanis;
foreign businesses are still insignificant in this regard. Therefore,
exceptionally higher international telephone rates charged by the PTCL are
meant to milk the voiceless Pakistani expatriates. Western countries, having
no particular sympathies with the expatriates, are trying to force the third
world state communication monopolies to bring their tariffs in line with the
international standards to lower the business cost of their multinational
corporations. In Pakistan's case -- where multinationals are yet embryonic --
expatriates will be the main beneficiaries when PTCL is forced to slash its
international rates. Therefore it is misleading to say that the Western
countries (specifically the US) are conspiring to rob Pakistanis of their due
share.

PTCL has not applied a business approach to charge fee for its services on
the basis of cost and benefit analysis. Instead, Pakistan has employed a
strategy to use PTCL as a conduit for imposing indirect taxes. The main
objective has been to generate surplus revenues to pay for its non-income
generating operations. However, such a strategy has been self-defeating. It
has led to excessively higher rates resulting in surplus revenues. It has
created complacency in the communication department and the organization is
run inefficiently. It does not make money like the other international
carriers. Following examples will prove this point:

-- Most of the carriers make substantial money through operated assisted
calls or trunk calls. While the international telephone companies instantly
provide connections to encourage the consumer, it is a nightmare to make an
operator-assisted call in Pakistan. Many a time one needs a personal
connection in the telephone exchange to get the call through. Given the lower
labour costs, trunk calls should substantially enhance the revenues but it is
not materialized because of inefficiency.

-- Unlike the rest of the international communication enterprises, PTCL does
not try to enhance revenues through increasing the volume of calls:
exorbitant rates deter the domestic and foreign consumers to make calls other
than what is absolutely essential.

-- When the country is in dire need of foreign exchange earnings, revenues
through incoming overseas calls have been a big source of money. Given such a
huge source of forex earnings, one would expect that PTCL would do everything
to facilitate such overseas calls. Contrary to that, most of the time
overseas caller finds that "all circuits are busy, try to call later."
Consequently, the caller has no choice but to forego the call unless there is
an emergency. Investigations show that while US carriers have surplus
capacity, PTCL has not allocated enough lines to accommodate overseas calls.

--In this global environment and integrated markets, no business can be
conducted without extensive use of telephones. Hence, the telephone bills
constitute a significant portion of the businesses cost. While excessive
telephone bills cannot be ignored even by large corporations, these can
jeopardize the viability of nascent industries and emerging businesses.
PTCL's higher telephone rates is one of the major deterrent to new business
formations.

Furthermore, before investing in the developing economies, the foreign
investors evaluate the condition of communication infrastructure besides
other factors. Relatively lower business costs attract the international
investors to the developing countries. However, if in a developing country,
the cost of communication services are higher than even in the developed
countries what incentive they will have to invest their capital there? If the
Pakistan government seriously wants to attract foreign investments, it should
provide efficient communication infrastructure at competitive rates.

According to the new WTO rules, countries cannot shift their internal
economic burdens to others through subsidies or tariffs. This means that the
indirect taxes (excessively practiced in Pakistan) cannot be substituted for
direct taxes. Moreover, the countries' ability to extract undue advantages
from other countries through monopoly powers over certain services (like
communications) will come under strict scrutiny.
Defiant countries will face sanctions and reprisals. In other words, states
will lose sovereignty over those operations which are even remotely linked
with the global markets. Therefore, countries like Pakistan should use a
forward-looking strategy to streamline their business operations before
international rules hit them.

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