The licenses of three mobile cellular operators are under process for renewal and it is an opportunity to correct some anomalies in the cellular framework to make the sector more efficient and robust. If these anomalies are not addressed in the current renewal process, these would be haunting the industry for another 15 years.
Back in 2004, Pakistan Telecommunication Authority (PTA), through an open market method, issued two new mobile cellular licenses to Warid and Telenor. It was also decided at that time through Mobile Cellular Policy 2004 that the earlier issued four licenses would be renewed on the same fee, terms and conditions for the sake of creating a level playing field.
Under this framework, the 2004 license template was given to all renewed licensees and same fee of $291 million was charged. Ufone was the last mobile operator to get renewal in 2014.
The mobile cellular licenses, issued to Warid and Telenor in May 2004, were for a period of 15 years, thus up for renewal in May 2019. Zong license was also up for renewal in October 2019. As per the process requirement in license, all three operators applied for renewal in 2016. For Jazz and Ufone the renewal years are 2022 and 2029 respectively.
The government and PTA were required to work together and come up with the renewal framework and the choice was either to continue with the 2004 framework or come up with a new one, while giving adequate time for consultation.
There was an opportunity for the government to address this matter under the 2015 policy but the then government avoided to address this issue. Unfortunately, the policy directive for license renewal was issued only few days before the actual renewal date. The operators being dissatisfied with the fees and other conditions of renewal approached the Islamabad High Court and the matter is still pending there.
Since the matter is sub-judice, therefore I would not comment on the contested part of the court cases but would like to highlight certain anomalies, which may be addressed as part of the renewal process. If these anomalies are not addressed in current renewal process, these would be haunting the industry for another 15 years.
Delink service license from spectrum
The first and foremost anomaly is that every time a mobile operator has to acquire spectrum, it has to get a new service license with different terms and conditions to basically provide the same service in the same market. For example, Telenor has three spectrum service licenses, issued in 2004, 2014 and in 2016 to provide the same voice and data services with significantly different obligations. With more auctions coming up, the situation will get further complicated and compliance of different obligations in multiple licenses will be a nightmare.
It is high time to address this anomaly by delinking the service license from spectrum allocation. Operator should have one service license to provide the mobile cellular services and be allowed to acquire spectrum in primary or secondary markets as and when needed without the need of a new service license. This will also address the issue of different mobile operators having different license obligations but competing in the same market.
Coterminous
The second anomaly is that the licenses of different operators are expiring at different times. For example, the licenses of Warid, Zong and Telenor expired in 2019, whereas the licenses of Jazz and Ufone will expire in 2022 and 2029 respectively. The new licenses issued in 2014, 2016 and 2017 would be expiring in 15 years from date of issuance. Expiry of licenses of different operators at different times causes undue advantage or disadvantage to some of the operators. It is also an unproductive and repetitive clerical hassle for the regulator.
Benchmarking of renewal fee is a good example of it and fully highlights the anomaly. Under the current regime, 2004 price benchmark can be applied in 2014 (for Ufone) but not in 2019 (for Warid, Telenor and Zong). It gets funnier that 2004 benchmark cannot be applied in 2019, however the 2019 renewal benchmark will be applicable in 2029 (again for Ufone). And this cycle will continue forever.
It would be better that PTA now renews licenses to a target date so that the next renewal will happen simultaneously for all operators. The target year could be 2029, when Ufone’s license is up for renewal and PTA should renew the licenses of Warid, Telenor, Zong and Jazz till 2029 charging proportionate renewal fee. In this way, the licenses of all operators will always be renewed simultaneously with same fee and same terms and conditions, creating a level playing field.
Administrative vs market method
The third anomaly is that the current method of renewal is administrative in nature, which is inherently non-transparent and rarely consensus oriented. Market method is relatively open and transparent as the market determines the true value of the spectrum instead of the regulator or government based on extraneous factors. Since 2004, in Pakistan all fresh spectrum grants have been made through auctions, why not do the same for renewal. In this way the government will get true value of the renewed spectrum instead of using unrelated pricing of spectrum as benchmark for renewal.
As per above suggestion, if all licenses are coterminous in 2029, then PTA can conduct auction for renewal. This will also allow new entrants to participate in the auction and make market more efficient as the less efficient operators will have to exit the market, allowing the new entrant to invest in modern services and better quality of service.
Allocation in multiples of 5MHz
Next anomaly is inefficient allocation of spectrum in unequal blocks. Currently spectrum block sizes vary from 4.8MHz to 5MHz to 7.6MHz to 8.8MHz to 10MHz. Technically, it is more feasible to make spectrum blocks of 5MHz and allocate in multiples of 5MHz. The ex-mobile operator Instaphone claimed to be victim of such inefficient allocation of 7.38MHz.
PTA can also determine a minimum spectrum allocation, which should be same for all operators and then let the operators be allowed to buy more in open auction on need basis. In the spectrum under renewal, base spectrum is not the same for all operators in both 900MHz and 1800MHz. It is a good idea to address this issue now instead of postponing it for another 15 years. Ideally, all mobile operators should have minimum 5MHz in 900MHz and 10MHz in 1800MHz and rest should be auctioned among them. New entrants may also be allowed to bid in the auction.
E-GSM
Interference from India in the E-GSM band is a long standing issue and needs to be resolved during the renewal process. There are two options: either convince Indian regulator to do the same allocation as in Pakistan or align with India and stop using the E-GSM band. In the second option, 10MHz of spectrum would be available in the 850MHz band for allocation and it would also allow the downlink of the E-GSM band to remain available and be allocated in an asynchronous manner (that is 25MHz available for the Uplink and 35 MHz available in the 900MHz band).
Defragmentation of spectrum
This is an anomaly, which hurts Jazz the most, as after acquisition of Warid, the spectrum of both licenses are not contiguous, which makes it hard to efficiently utilise it.
This issue is also relevant for operators, who have bought additional spectrum in 1800MHz in 2014 and 2017 auctions. In order to achieve the spectral efficiencies existing spectrum may be reshuffled to make it contiguous for all the mobile operators.
Use or loose
Last but not least, hoarding of spectrum needs to be discouraged. An operator not using a particular spectrum block or claiming it to be interfered, should not be allowed to continue holding it and depriving others who can use it more efficiently. Compensatory spectrum bands should be allocated in replacement and not in addition to the interfered spectrum.
It is also possible that an operator with deep pockets will not let others, who need it most, to buy spectrum in upcoming auctions. There needs to be some check and possible cap for significant market powers, matching their market share.
The writer is an ICT regulatory expert