IBA – SHRM TERM REPORT

IMPACT OF PRIVATIZATION ON PTCL AND FEATURES OF THEIR VOLUNTARY SEPARATION SCHEME

Table of ContentsINTRODUCTION........................................................................................2

PTCL BRAND PHILOSOPHY AND VISION...................................................2

Vision....................................................................................................2

History...................................................................................................4

Products and Services...........................................................................4

PTCL TODAY.............................................................................................4

Employment Categories........................................................................6

Departments.........................................................................................7

Business Support Functions..................................................................7

Land Wise Regional Distribution...........................................................8

PRIVATIZATION PROCESS AT PTCL...........................................................8

HR CRISIS FOLLOWING PRIVATIZATION.................................................10

VOLUNTARY SEPARATION SCHEME.......................................................11

Target Population................................................................................12

Components of VSS.............................................................................12

CONCLUSION.........................................................................................17

RECOMMENDATIONS............................................................................18

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INTRODUCTION

Pakistan Telecommunication Company Limited (PTCL) is the leading telecommunication authority in Pakistan. The corporation provides telephonic and Internet services nation-wide and is the backbone for the country's telecommunication infrastructure despite the arrival of a dozen other telecommunication corporations.

PTCL manages and operates around 2000 telephone exchanges across the country, providing the largest fixed-line network. Data and backbone services such as CDMA, broadband Internet, IPTV, and wholesale are an increasing part of its business. PTCL also continues to be the largest CDMA operator in the country with 0.8 million V-fone customers. The company maintains a leading position in Pakistan as an infrastructure provider to other telecom operators and corporate customers of the country. It has the potential to be an instrumental agent in Pakistan’s economic growth.

PTCL has laid Optical Fibre Access Network in the major metropolitan centers of Pakistan and local loop services have started to be modernized and upgraded from copper to an optical network. On the Long Distance and International infrastructure side, the capacity of two SEA-ME-WE submarine cable is being expanded to meet the increasing demand of International traffic.

Originally one of the state-owned corporations (SOEs), the shareholding of PTCL was reduced to ≈62%, when 26% of shares and control was sold to Etisalat Telecommunications and the remaining 12% to the general public in 2006 under an intensified privatization programme of prime minister Shaukat Aziz. However, the 62% of shares still remain under the management of government-ownership of state-owned corporations (SOEs) of Pakistan.

PTCL BRAND PHILOSOPHY AND VISION

Vision

“To be the leading Information and Communication Technology Service Provider in the region by achieving customers' satisfaction and maximizing shareholders' value.”

“Hello to the Future” is an amalgam of PTCL’s vision, brand philosophy, brand values and strategy. The essence is “futuristic approach”. The positioning statement “Hello to the Future” is basically comprised of two words “Hello” and “Future” that provides the inward

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communication through the word “Hello”, i.e. PTCL welcomes its customers and the future. Also it offers the outward communication through the word “Future” by promising customers the futuristic ideas and products, along with proactive solutions.

History

From the beginning of Posts & Telegraph Department in 1947 and establishment of Pakistan Telephone & Telegraph Department in 1962, PTCL has been a major player in telecommunication in Pakistan. Pakistan Telecommunication Corporation (PTC) took over operations and functions from Pakistan Telephone and Telegraph Department under Pakistan Telecommunication Corporation Act 1991. This coincided with the Government's competitive policy, encouraging private sector participation and resulting in award of licenses for cellular, card-operated pay-phones, paging and, lately, data communication services.

Pursuing a progressive policy, the Government in 1991, announced its plans to privatize PTCL, and in 1994 issued six million vouchers exchangeable into 600 million shares of the would-be PTCL in two separate placements. Each had a par value of Rs. 10 per share. These vouchers were converted into PTCL shares in mid-1996.

In 1995, Pakistan Telecommunication (Reorganization) Ordinance formed the basis for PTCL monopoly over basic telephony in the country. The provisions of the Ordinance were lent permanence in October 1996 through Pakistan Telecommunication (Reorganization) Act. The same year, Pakistan Telecommunication Company Limited was formed and listed on all stock exchanges of Pakistan

PTCL launched its mobile and data services subsidiaries in 2001 by the name of Ufone and PakNet respectively. None of the brands made it to the top slots in the respective competitions. Lately, however, Ufone had increased its market share in the cellular sector. The PakNet brand has effectively dissolved over the period of time. Recent DSL services launched by PTCL reflect this by the introduction of a new brand name and operation of the service being directly supervised by PTCL.

The post-monopoly era came with Pakistan’s Liberalization in Telecommunication in January 2003. On the Government level, a comprehensive liberalization policy for telecoms sector is in the offering. In 2005, Government of Pakistan decided to sell 26 percent of this company to some private corporation. There were three participants in the bet for privatization of PTCL. Etisalat, a Abu Dhabi based company was able to get the shares with a large margin in the bet.

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Government's plan of privatizing the corporation was not welcomed in all circles; countrywide protests and strikes were held by PTCL workers.

Products and Services

PTCL provides a number of products and services. Under business solutions, it provides PTCL cloud alongwith managed solutions, PTCL managed services providing a comprehensive solution for corporate customers, International Business, Hosted Solutions, Carrier and Wholesale, Business Connectivity for an integrated end to end domestic and global connectivity and Business communication.

PTCL provides a range of personal products and services aswell. In addition to wireline operations, PTCL also provides fixed line service through its countrywide CDMA based WLL (Wireless Local Loop) network, under the VFone brand name.

In the Internet segment, PTCL provides fixed broadband through conventional copper wire & FTTC and wireless broadband based on EvDO Rev A and B technology with the brand name of EVO. Under the head of EVO, PTCL is running 4 sub brands; EVO 3G wireless, EVO 3G Nitro 9.3, EVO Wingle 9.3Mbps and Charji EVO, which is the latest addition to the EVO family. PTCL has also introduced a 3G enabled android tablet.

In addition to these services, PTCL also offers some of the world's first commercial HD TV services based on IPTV with the brand name of Smart TV and home surveillance and alarm over broadband under the brand name iSentry. PTCL is also part of the consortium of three major Submarine communication cable networks: SEA-ME-WE 3, SEA-ME-WE 4 and I-ME-WE.

PTCL also has Intelsat standard Earth Stations near Karachi and Islamabad. These installations provide the diversity for International voice connectivity and also work as Hub for domestic satellite users. There are four Intelsat Standard B Earth Stations at Islamabad, Gilgit, Skardu and Gawadar.

PTCL TODAY

Pakistan Telecommunication Company Limited (PTCL) is a megacorporation and a leading telecommunication authority in Pakistan. Originally one of the state-owned corporations

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(SOEs), the shareholding of the PTCL has been reduced to 62%, when 26% of shares and control was sold to Etisalat Telecommunications and the remaining 12% to the general public in 2006 under an intensified privatization programme of Prime minister Shaukat Aziz. However, the 62% shares are still remains under the management of government-ownership of state-owned corporations (SOEs) of Pakistan.

26%

62%

12%

Ownership Division

Etisalat

Government of Pakistan

General Public

Pakistan Telecommunication (Re-organization) Act, 1996 replaced Civil servants Act for PTCL in 1996 and it became applicable on all employment categories. As per old employment structure at PTCL before privatization there were two main categories, namely; Daily wagers and Regular Govt. employees. BPS grade 17 and above employees were inducted through CSS and follow the same bureaucratic protocols as of any other government organization in Pakistan.

BPS 1-16 grade employees were inducted through different placement programs time to time and follow regular government pay-grade structure. Whereas, Daily wagers were contractual labor hired for different projects, paid on monthly basis but not entitle for any benefits like any other regular employees.

Etisalat takes over PTCL’s management in 2006 with 72,000 employees across Pakistan. PTCL is one of those high potential public sector organizations which were generating profits after being so overcrowded. Restructuring and right sizing of the organization were the main challenges for the new Etisalat Management.

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So right after takeover Etisalat initiated a study/survey through renowned consultants to identify the gaps and right potential of the organization. They revealed that PTCL is highly overcrowded and must have laid off 80% current workforce in order to get the desired objectives. The new PTCL management decided to restructure employment categories and to introduce “Voluntary Separation Schemes” for all categories except daily wagers.

Employment Categories

Under new PTCL employment structure now there are seven different employment categories.

Employment Categories Management Open ended contracts (NTC)-Newly Hired Etisalat employees Regular ( Govt. employees) Management Trainees Non-Management Regular (Govt. employees) NCPG (Daily wagers shifted to permanent payroll) Outsourced staff (Third-party staff; HRSG, Esquare) Secondees (PTCL employees working on secondments in different countries; Eg.

ROSHAN Telecom Afghanistan) Job Titles redefinition was also the part of new restructure policy. Job titles President Senior Executive Vice President Executive Vice President General Manager Sr. Manager Manager Asst. Manager/Specialist Management Trainee

For effective business operations and maximum utilization of human resources departments, business function and Regions were also re organized.

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Departments

Business Support Functions

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Land Wise Regional Distribution

Operationally Pakistan is divided into three regions North, Central and South.

Yellow: North

Green: Central

Blue: South

PRIVATIZATION PROCESS AT PTCL

The major objective of the PTCL privatization was to introduce investment and an improve and efficient management that can better respond to consumer demands, especially with increase the installation of new lines to meet the escalating needs of information technology. The company was also suffering from large-scale corruption, nepotism and mismanagement.

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Company resources and staffing were also mis-utilized through political influence and staffing decisions were similarly politically motivated. In 2004, the government official pressurized PTCL to pay Rs. 25 billion as dividend from net profit of Rs. 30 billion, being the major shareholder; the large amount was collected by government. Due to these conditions, the company lagged behind in acquiring new technologies in comparison to other companies which were making strategic investments.

This process was initiated as early as 1994 and also enabled the government to gauge market interest in any potential takeover process. The Privatization Commission initially offered 2% shares of PTC through voucher scheme and after receiving a positive and encouraging response offered another 10% shares to the foreign buyers in September 1994 worth $ 898 million. The formalized management change started in 2004 and PTCL’s 26% shares were offered for privatization along with the management control. Initially three organizations, namely Etisalat from a UAE consortium, SingTel from Singapore and China Mobile were short listed for the final bidding. PTCL consisted three business units, Ufone, PakNet and country wide landline network. The estimated assets of the company were approximately USD 10 billion and this was one of the major corporate transfer in history of Pakistan. In 2006 the final bid was secured by Etisalat at highest price of $ 1.96 per share whereas, $ 1.16 by SingTel and $ 1.40 by China Mobile respectively. The Etisalat offered $ 2.6 billion with management control of the company. 66% of the shares of the company were retained by Government of Pakistan and remaining shares were offered for public subscription. Subsequently Etisalat took over the control of PTCL along with the control on Ufone and PakNet.

PTCL is generally cited as being an inappropriate case for privatization. Generally, governments offer those organizations for privatization whose performance is considered below standards or if they are a management and administrative burden on the government. However, the case of PTCL privatization was unique in that a highly profitable organizational was offered for privatization. It was contributing large amounts to national exchequer. Before the privatization in 2005, PTCL generated Rs 84 billion with a net profit of Rs 27 billion. In addition, it was a poor decision to transfer management powers and control to an acquirer who was not familiar with the organizational culture in Pakistan. Instead of building the company strength, capability and making it more competitive in global market, the company was ambiguously sold. A number of potentially unnecessary concessions were also made to PTCL during this process. The privatization of PTCL was also exempted from purview of Public Procurement regulatory Authority Ordinance 2002 in the federal budget. With this major constitutional concession, the Etisalat was given free hand for selling and purchasing of assets. It was able to acquire PTCL in five year easy installments. The government was also asked to pay 50% of the layoff charges regarding the employee’s voluntary separation program and Etisalat received $50 million as technical assistance fees for providing management services and expertise

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HR CRISIS FOLLOWING PRIVATIZATION

After the privatization, the company went through the process of rightsizing and downsizing of employees. 32000 employees from various sections left PTCL through voluntary separation program and the government had to bear $256 million as the payment to employees. A number of employees lost confidence in the long term direction of the company and competent managers and professionals also resigned. Soon the loss of large number of experienced and trained workers began to hurt the performance of PTCL. The network maintenance, customer care and operations suffered abruptly; consequently, thousands of connections were lost. In addition, the new management had to first understand the prevailing ethics and works environments and culture in Pakistan, and then in turn develop a new culture that would more in line with international norms. The company had to address the suppressed morale following an internal research they did and found following underlying factors and feelings within the organization, where employees were concerned about future in which;

• the way in which redundancies will be decided

• the way that individuals will be notified due to rightsizing

• the effectiveness of communications (or lack of adequate, clear, believable information) throughout the process;

• the perceived fairness of the selection criteria; and,

• the aftercare of leavers and interpersonal treatment received from line management

Keeping all the factors in mind, company had to come up with a process to release unnecessary workforce. Privatization encompasses a wide range of social consequences and a growing concern over the negative repercussions of privatization has spawned research worldwide. The effects of privatization on the employees, employers, industries and the society in general are wide ranging. The effective policy prescriptions are essential in the whole privatization process. Therefore, PTCL came up with a Voluntary Separation Scheme for its redundant workforce.

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VOLUNTARY SEPARATION SCHEME

The Voluntary Separation Scheme (VSS) offered by the PTCL is purely voluntary in nature and does not force any employee to leave the company. The management was fully cognisant of PTCL’s employees concerns regarding the scheme, and the aim of VSS is to offer an attractive scheme to employees and at the same time, to help improve its operational efficiency.

The scheme would offer attractive package to the employees and it would be ensured that the PTCL management inculcates confidence amongst the employees regarding the benefits of the scheme and its voluntary nature. He further said that the PTCL employees would be guided through workshops on safe and secure investment opportunities.

When the first round of VSS was run in PTCL back in 2008, it was a success at 30,000 employees opted for it. In 2012, 5,600 employees opted for it.

In PTCL, the term voluntary is defined as ‘on one’s own will’, and employees decide whether to opt for the package or not, based on a totally own decision. Each successive VSS is made in such a way that it appears not only different but more lucrative from previous schemes.

Target Population

The VSS is applied on Regular and NCPG quota employees, it is not applicable on contractual and daily wagers employees. VSS aims to target redundant, surplus and low performing workers.

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Salient Features of VSS include all the following points:

EOBI benefits. Addition of training period to the LOS. PTCL accomodation for 6 months. Increase in annual increments. Simplified forms and more help desks

Components of VSS

The VSS scheme comprises of primarily of 5 basic components:

1. Transition compensation2. Benefits compensation3. Supplementary benefits4. Optee Support Program

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The transition compensation is valid on all regular and NCPG employees; transition bonus has two rewards, based on time limit i.e Rs 200,000 as an early bird bonus and Rs 150,000 as regular program bonus. All the calculations are based on Incremented Basic Pay/Emoluments/Gross Pay i.e Pays & Allowances as of December – 2014 Payroll

Transition Pay Criteria

VSS includes benefit of 2 year of relaxation to pension eligibility and enhanced gross pension due to the employee’s length of service. The retirement benefit for employees greater than and less than 18 years differs as per following options.

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Gratuity is only applicable to NCPG employees, while the health fund includes both NCPG and regular employees according to the employee’s length of service

Leave encashment is applicable to both NCPG and regular employees but the cash amount formula varies for both.

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Supplementary benefits of Loan write-offs and minimum package amount apply to both Regular and NCPG employees.

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CONCLUSION

In the light of the above facts we conclude that privatization is critical and politically sensitive government activity that has led to fundamental shifts in the relationship between the private and public sectors and effects of privatization on workers are both negative and positive. Privatization is in the interest of employees because workers often have gained from privatization and after privatization; remuneration packages tended to improve. In several instances there have been wage rises and better working conditions. In an industry that is sufficiently competitive privatization improves welfare. However, effects of privatization usually on jobs are negative because public enterprises were overstaffed and on privatization employees, feel job insecurity and have fear losing their jobs. In majority of privatization cases workers lost their jobs after privatization, but in cases where employees lost their jobs as a result of privatization, such employees tended to receive generous severance. Overall point is that there can be no simple prediction about the distributional effects of privatization; the impact depends on at least three factors: initial conditions, the sale event, and the post-privatization political and economic environments. Whatever, the balance between the various objectives of privatization, social considerations are an essential component of its process. They should form an integral part of the design and implementation of privatization policies and programs. Privatization works most successfully where it is backed up by social consensus and support. We conclude that privatization brings layoff and reduction in employment if there is overstaffing and privatization is carried out without proper planning for this overstaffing, but it brings other benefits like wage rises or lucrative packages in the form of golden handshakes.

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RECOMMENDATIONS

On the basis of the study and analysis following broad recommendations have been extracted:

Privatization has given impetus to market reforms in many countries. To have an impact, it is important to coordinate the activities of the bodies responsible for privatization and those responsible for competition

If privatization is to yield strong benefits to society as a whole, it needs to give consideration to its impact on workers. Social factors such as job security, occupational stress, in the affected community and its natural environment should be serious considerations in privatization activities

To lessen the side effects of privatization, organizations should support their employees sufficiently to enable them to adapt themselves to the changes, through allowing their employees to participate in making decisions concerning the functional changes in the system to prevent or reduce the subsequent job stress

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