BR Research has been highlighting unfair tax treatment of cellular users in this space for quite some time. (Latest read: "Cellular users at a loss"; published December 16). In addition to the cellular airtime being taxed at 19.5 percent GST/FED, subscribers lose a quarter of their prepaid recharge value to 15 percent WHT and a variety of additional operator surcharges.

What the government needs to understand is that discriminatory taxes and additional surcharges need to go because cellular connectivity is no more a luxury. Cellular service has fast become a necessity across all income groups and demographics. Government is the main culprit here which is squeezing the golden goose for easy taxes, while its sector regulator, PTA, hasn been stringent to stop operators from levying these surcharges.

But last week, the competition watchdog evoked a stir in this status quo when it issued show cause notices to all five cellular operators. Based on an internal enquiry report, the Competition Commission of Pakistan concluded that the "additional charges" levied by the operators on prepaid recharge constituted a "deceptive marketing practice", thus violating Section 10(2) (b) of the Competition Act.

The CCP equated the additional charges to "hidden costs" of using cellular voice and data services. The commission maintained:"(The)imposition of additional charges in the form of maintenance, operational or administration fee, prima facie, gives a misleading/deceptive impression to an ordinary consumer as to the actual price paid for making a call or sending an SMS or other services availed..."

Whats the other end of the story? Why are the cellular operators levying these surcharges on users prepaid credits?

A number of reasons were given in the operators responses to CCPs fact finding queries dating as far back as July 2011. These included power outages, rising cost of fuel and electricity, increasing operational overheads, rising distribution costs, worsening security situation, network maintenance, rural expansion, sustaining profitability, etc.

Most of the reasons cited by the operators affect their operations, as the sector has been through tough years lately. One also understands that the deregulated telecom sector allows the operators to increase prices on their own. One also appreciates the need for continued investments in network upkeep and expansion.

But, the correct way to incorporate or pass on the rising operating costs (or future investment needs) is to raise the "tariff". A tariff is what the customers are liable to pay for the voice or data "service" offered by the operators. Operators are allowed to raise their tariffs.

The market, however, responded by imposing additional charges on prepaid balance, and that, too, in tremendous harmony among operators. The problem, which CCP has correctly identified, is that these so-called "service charges" and other operator fees are offering no additional service or benefit to subscribers. Meanwhile, the illusion of "cheap tariffs" is alive.

With no remedy in sight from the telecom watchdog, one expects the CCP proceedings to go some way in helping address this grave violation of consumer rights. If there are signs of collusion in levying these additional charges, the CCP should investigate and penalize the operators involved. The government, for its part, must help enforce the competition remedies suggested by the commission and not become a hurdle.

DISCLAIMER: This research article has been taken from Business Recorder, Original link of the article is mentioned here:
http://www.brecorder.com/br-research/44:miscellaneous/4009:are-the-cellular-service-charges-justified/