Why, when the solution is staring one in the face, do governments continue to foster grey markets?

Posted on January 30, 2015  /  1 Comments

I was reading the 2014 Annual Report of the Pakistan Telecommunication Authority, where on page 37 the PTA reports that international calls being terminated on Pakistani mobile networks has decreased dramatically since 2011-12, from 10.8 billion minutes to 5.6 billion minutes in 2013-14. The PTA even says that “one view is that this is due to the introduction of the International Clearing House (ICH).” But no reaching of the obvious conclusion: abolish the ICH and stop playing ineffective cartel manager.

While I was reading this strange document, a tweet alerted me to an OECD piece on the grey market in Ghana:

This is partly due to suppressed demand in foreign countries and partly to various players bypassing the system. The price difference between international and domestic termination rates becomes so large that a “grey” market is created to bypass the official rate by terminating traffic at local levels. This criminalises an activity that in a liberalised market would be viewed as a routine practice, and creates costs in monitoring traffic and in law enforcement.

Communication network operators are also disadvantaged. Between 2009-2011, African countries that did not raise termination rates received 36% more termination revenue per line than those that did. Where rates were raised, not only were there fewer calls, they were shorter.

The argument that the burden is progressive since it falls upon those with a greater ability to pay is also false. Customers with the financial and technical means may use broadband and VoIP to bypass the system. The standard rates only come into effect when calls terminate on a public network where the end user may be unable to afford an Internet connection. As a result the users most likely to be affected, are the diaspora calling relatives and friends in such countries. In many cases, therefore, the people most affected at both ends of the call are likely to be those least able to afford increased prices. Unfortunately, the number of countries that have raised termination rates in recent years, by eliminating competition, is expanding.

Why, if the answer is known, do governments not do the obvious thing? Perhaps the answer lies in the proceeds of criminality.

1 Comment

  1. Stakeholders of such “criminality” are identical to the Mexican drugs cartel. Police, politicians, civil servants, judiciary and military establishment – you name it. Bypassed international calls bear the multimillion dollars price tag. Such a precious, yet intangible, commodity invisibly crosses the countries’ national borders. International gateways (IGWs) are the equivalents of passport control and customs.

    Therefore, it is essential to criminalize the operations of IGWs. And governments dictating the international calls’ termination rates is icing on the cake. In addition to unlawfully amassing personal wealth, the bypassed international calls have become preferred source to fund terrorists and crime syndicates. The governments of Pakistan and other countries are welcome to prove me wrong.