Mobile Evolution: 08/05/09

Etisalat International, buyer of the management control through purchase of 26 percent
shares in Pakistan Telecommunication Company Limited (PTCL), has threatened to approach arbitration court in London if the GoP resorted to issuing Long Distance International (LDI) licence to China Mobile, official sources told Business Recorder.

"Etisalat is contesting the anticipated award of LDI licence to China Mobile as a breach of the Shares Purchase Agreement (SPA) and guarantees given to it," sources said. Etisalat has already withheld payment of last tranche of about $780 million because according to it the GoP failed to transfer properties in the Punjab and Sindh in favour of PTCL.

Sources said that the Ministry of Information Technology had submitted a summary to the Cabinet for grant of LDI telecommunication licence to China Mobile Pakistan (CMPak) after consulting Prime Minister Secretariat, Ministries of Foreign Affairs and Interior, Cabinet Division (PTA) and Board of Investment (BoI), who recommended issuance LDI licence to CMPak. The Cabinet in its meeting on September 24, 2008 decided to grant LDI licence to China Mobile Pakistan in relaxation of the "watch hold" decision of Cabinet Committee on Regulatory Bodies (CCRB).

Etisalat International, which bought the management stakes of PTCL (through purchase 26 percent of Class-B shares), has agitated that in the light of SPA schedule-6 clause-g, such an action on the part of the GoP is violation of SPA concluded between GoP and Etisalat on March 13, 2006.

Its stand is based on the following provision of SPA which stipulates: "deliver to the Purchaser's Solicitors a certified copy of the policy directives of the Pakistan Telecommunication Authority relating to the non-issuance of new mobile and fixed line license in Pakistan for 7 years from the date hereof".

The background of the subject issue springs from the fact that while SPA was negotiated and signed by the Privatisation Commission and Etisalat on March 12, 2006, the MOIT through a summary on the subject of 3-G cellular mobile and fixed line licensing, submitted to CCRB March 18, 2006 proposed that in the wake of development like privatisation of PTCL and future prospects of growth of telecommunication sector, the process of grant of new LL, LDI and cellular licences be put on the watch-hold for the next seven years and PTA be asked to submit periodical reports in terms of growth and absorptive capacity of the markets.

According to sources, CCRB, in its decision of March 22, 2006, approved the proposal, accordingly. It seems that while submitting this summary, the Ministry had lost sight of the legal provision of the aforestated stipulation (clause-g of schedule-6) of the SPA. Besides, it appears that the Ministry had submitted a summary for grant of LDI licence in favour of CMPAK on account of the assumption that nothing precluded the GoP to issue any new LL, LDI and cellular mobile connection, corresponding to the availability of spectrum and interplay of the market forces, as things were put on the 'watch-hold' as decided by the CCRB, whereas, according to Etisalat International SPA's afore-stated stipulation is affront to such stance of GoP.

On the other hand, CMPAK is pressing hard for issuance of LDI licence, in its favour in pursuance of the Cabinet's decision of September 24'2008. Etisalat is now contesting the anticipated award of LDI licence to China Mobile as a breach of the SPA and guarantees given to it.

MOIT in a recent communication solicited Etisalat's viewpoint in the light of the foregoing and, in response, Etisalat reiterated its earlier stance and indicated to take the matter to the arbitration Court in London UK as agreed by the two sides under the arbitration clause of the SPA, sources added.

The issue is also of further relevance in view of the fact that MOIT is, presently, formulating a policy for auction of 3G (Third-Generation) Mobile services frequency spectrum for proliferation of broadband services in the country. This also includes the issue of allowing new entrants for bidding of 3G frequencies and eventual new licensing. Necessary consultations with all the stakeholders including PTA, BOI, Cabinet Division, Privatisation Commission, National Assembly Standing Committee on IT and Law Division have also been made and all of them have supported the recommendation for award of new 3G licences to new bidders as well.

A Summary for according approval to the policy framework on 3G is also under process of submission to the Cabinet, sources said. "There exists a strong possibility of Etisalat invoking the relevant clause of SPA, should the GoP issue any new LDI licence or puts 3-G spectrum to auction and eventual issuance of new 3G cellular mobile licences," sources added.

They said that MoIT has proposed to the top decision makers that GoP may take up the issue with Etisalat for one-time consent of issuance of LDI licence to CMPAK; and, if deemed necessary, fresh policy directive for a moratorium on new issuance of fixed line (LL & LDI) and cellular licences for the remaining time of commitment with Etisalat may be issued.

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