Losses hamper telcos’ merger

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ISLAMABAD:

The losses incurred by mobile phone services provider Ufone, a subsidiary of Pakistan Telecommunication Company Limited (PTCL), have become a key hurdle to the merger between PTCL and Telenor, industry officials say.

According to them, PTCL has long been providing cross-subsidy to Ufone, but now the government wants to scrutinise the accounts of Ufone before giving the go-ahead to the merger plan. Sources in the telecom ministry told The Express Tribune that the losses of Ufone were parked in PTCL that denied dividends to shareholders, though the Ufone management and board of directors were enjoying perks and privileges.

They added that Ufone had also government nominees on its board but state representatives never raised questions over the losses. Anti-trust watchdog, the Competition Commission of Pakistan (CCP), had also asked PTCL to submit the accounts of Ufone. Though Ufone provided its financials, those were too complicated to understand.

According to officials, the CCP is undertaking the scrutiny of Ufone accounts as it wants to know the reasons for losses and cross-subsidy.

Talking to media, Minister for IT and Telecom Shaza Fatima Khawaja had already acknowledged that Ufone was not sharing its balance sheet with the government. She clarified that Ufone was operationally under Eitsalat’s control; therefore, the government was not responsible for its constant losses.

The minister was asked for reasons for the continuous losses faced by Ufone at a time when other telecom companies including Zong and Jazz registered a significant jump in profits. The minister emphasised that since PTCL and Ufone were operating under Etisalat, the IT ministry was not responsible for its financial health. However, she said the government of Pakistan was the owner of PTCL and Ufone was its subsidiary.

During the second phase of the review of merger application, the Competition Commission sought details of PTCL’s market position from the Pakistan Telecommunication Authority (PTA) to determine that the intended merger would not reduce competition or strengthen the dominant position of the parties concerned.

The documents submitted by the PTA showed that instead of addressing the objections made by the regulator, the PTCL management challenged notices in the Sindh High Court.

PTCL submitted its application for merger with Telenor Pakistan to the Competition Commission on February 29, 2024, but there were flaws in the application, which were corrected on March 6, 2024.

During the hearing, the competitors of Ufone opposed the merger, saying it would create a monopoly for PTCL in the telecom sector.

When asked for comments, a PTCL spokesperson said that Ufone’s financial performance was announced as part of the PTCL Group’s financial results on a quarterly, half-yearly and annual basis in accordance with the regulatory requirements.

“As a policy, we do not comment on individual components of our financial results beyond what is officially disclosed. Stakeholders may refer to our financial statements available in public domain for accurate and comprehensive information,” the spokesperson said.

The official added that PTCL and Ufone operate as two distinct legal entities. Therefore, there is no cross-subsidisation between the two companies.

“Decisions related to dividend declarations are made at the discretion of the PTCL board of directors. These decisions are not influenced by the performance of any single subsidiary but rather reflect the overall interests of shareholders and long-term sustainability.”

The spokesperson said that the application for PTCL’s acquisition of Telenor Pakistan “is currently being reviewed by the Competition Commission and we will not comment on the ongoing regulatory proceedings”.

“However, we can confirm that all requested information has been submitted in a timely and transparent manner in accordance with the applicable regulations.”

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