CCP imposes Rs 15m penalty on DHA, broadband operator

[Lahore_Real_Estate]

* Both entities fined for entering a prohibited agreement

Staff Report

ISLAMABAD: Competition Commission of Pakistan (CCP) on Tuesday imposed a Rs 15 million penalty on Defence Housing Authority (DHA) and a broadband operator for entering into a prohibited agreement.

CCP bench, comprising of Chairperson Rahat Kaunain Hassan and member (M&A) Vadiyya Khalil, passed an order Tuesday in respect of the proceedings initiated against the DHA and a broadband operator for entering into a prohibited agreement by granting exclusivity—whereby a penalty of Rs 10 million on DHA and Rs 5 million on a broadband operator has been imposed for violation of the provisions of the Competition Act, 2010. Furthermore, the provisions of the agreement between DHA and the broadband operator, keeping in view the facts of the case, the grant of exclusivity in respect of right of way and to dig soil, have been declared to be in violation of Section 4 and thus of no legal effect. Accordingly, grant of exemption in respect of such exclusivity has been denied. The parties have been reprimanded that continuing the breach would entail serious consequences and the parties shall be liable to pay maximum penalty of Rs 1 million for every day of the continuing violation.

CCP initiated proceedings on receipt of several complaints from the residents of DHA, Lahore in respect of the lack of choice of service providers, other than broadband operator, for provision of telecommunication and media services and the unsatisfactory quality of such services. The information provided by DHA and broadband operator to the Commission revealed that there was an exclusive arrangement between the parties whereby broadband operator was the only service provider entitled to provide telecommunication and media services in certain phases of the property under the control of DHA. Show cause notices were issued to DHA and the broadband operator, for prima facie contravention of Section 4 of the Competition Act, 2010, which prohibits undertakings from entering into agreements in respect of provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market unless exemption has been granted by the Commission.

DHA in the hearings and through written submission admitted that the agreement between DHA and the broadband operator violated Section 4 of the Act and showed its willingness to modify the agreement in accordance with law. While, the broadband operator argued that the arrangement between the broadband operator and DHA did not have the effect of restricting other service providers to provide services within the DHA region. The residents of DHA could avail services from any other service provider using wireless technology and the exclusivity granted to broadband operator only pertained to right of way. The operator also submitted that the exclusive arrangement for 30 years would qualify for an exemption under Section 5 and 9 of the Act, as it has made huge investments, offers competitive rates, deploys a superior quality network, life of the cable used is thirty years and significant environmental hazards would occur if other parties laid their own cable.

During the course of the hearings identified two broad categories within telecommunication and media services market under the agreement were identified. One being telecommunication and media services provider through HFC fixed line network while the other being those provided through wireless technology. It was concluded by the Commission that due to the inherent nature of the services provided by using wireless technology, no service provider could be excluded from the DHA region. However, the exclusivity granted in respect of right of way led to restricting other service providers that wish to provide telecommunication and media services through fixed line basis, from doing so in the DHA region.

In respect of the justifications submitted by the broadband operator for grant of exemption, the Commission found that criteria provided in Section 9 had not been justified. While the rates submitted by the operator were the lowest among the service providers, however, the Bench observed that merely offering the lowest rates could not be the sole determinant of competitiveness; factors such as availability of choice, quality of service and after-sale service are the factors that should be taken into account. The parties have also been directed to submit any revised agreement that the parties may sign with the Commission within a period of 30 days from the date of entering into such agreement.