Monday October 18, 2021

Lacklustre response on spectrum auction deepens govt’s financial woes

September 26, 2021
Lacklustre response on spectrum auction deepens govt’s financial woes

ISLAMABAD: In a major setback to the government, the claims of raising US$ 1 billion through auction of Radio Frequency Spectrum fell short of the lofty goal as the Pakistan Telecommunication Authority (PTA) received a lacklustre response in the ongoing NGMS (New Generation Mobile Services) auction, with no new market entrants or major operators showing any interest to participate, a senior official said.

“With the view to reduce the budget deficit, the government had earmarked certain sectors through which funds could be generated in a straightforward manner. The telecom sector, being one of the largest and most widespread services sector in the country, was a prime candidate in this regard. The PTA issued a framework for spectrum auction for NGMS licences in Pakistan in the light of a policy directive of the government.”

The purpose of the auction, the official said, was to sell additional spectrum and licences in the 1800MHz and 2100MHz bands to existing, and possibly new, telecom operators. The federal government, through its policy directive dated 4th August 2021, assigned a base price of $31 million (per MHz) in the 1800MHz band and of $29 million (per MHz) in the 2100MHz band. The PTA put up a total of 27.8MHz (12.8MHz in 1800MHz and 15MHz in 2100MHz) for sale, with the total value of spectrum under auction being over $830 million (at the base price).

The PTA has faced multiple issues and setbacks throughout the entire pre-bidding process. Initially, the PTA proposed excessive roll-out obligations on prospective bidders, equaling 5pc population coverage per year. After extensive consultation and feedback from current operators, the PTA reduced these obligations to 3pc. However, the operators demanded that these stringent requirements should be done away with entirely, keeping in view the already-high rollout obligations that they need to fulfill under the existing licences. Operators also communicated other glaring legal and policy issues in the auction process to the PTA (e.g. no spectrum capping or rationalization in other RF bands, no framework for spectrum or infrastructure sharing, no framework for national roaming, no assurance on spectrum interference, etc.), which were also disregarded by the PTA.

Several ground realities such as the right of way issues and dwindling profit margins of the existing operators were ignored by the PTA. Further, license harmonization with increased obligations and over taxation also were major issues in discussion during the consultative phase.

It appears that the PTA’s hard stance during this auction consultative process and legacy issues such as spectrum interference, 2G license disputes, over regulation, etc., has resulted in the auction failing to attract any substantial bids from operators. No bids were made by the leading operators. The partially state-owned Ufone was the only saving grace as it was the only bidder for spectrum in 1800MHz. No new entrant has made any bid on any spectrum product. The result is that the majority of spectrum reserved for auction will remain unsold, despite the fact that most operators are in dire need of additional spectrum (due to ever-increasing service demand, rollout of new technologies and population growth). This auction has paralleled the catastrophic failure of the PTA, FAB and MOIT, on both the diplomatic and socio-economic fronts. China is a long-standing diplomatic ally of Pakistan and their state-owned operator has not participated in the auction. This is a major setback on the diplomatic front, since the 2014 auction witnessed great interest from the Government of China as not only approximately US$306 million were invested but paid in lump sum advance along with 10pc advance income tax. The only operator which has expressed its intention to participate in this auction is 60pc owned by the GOP. The remaining 40pc shareholder, Etisalat, is already a defaulter of the government to the tune of approximately US$800 million.

The proposed interest shown by state-owned Ufone will not help the government in meeting the revenue target since money will be merely changing pockets. Further news has been circulating for the last two years that Etisalat and GOP may be offloading their shares in Ufone and the participation of Ufone in the auction could be to facilitate the backdoor entry of a new investor interested in purchasing the shares of Ufone without complying with the requirements of privatization laws.

The PTA’s mismanagement of this auction, and its conduct over the years with existing operators, has eroded the trust of investing entities and has created an environment that is not conducive to any new business or further investment by existing operators. In a business environment of shrinking profits, coupled with coercive government agencies, it is unlikely that any further development or investment will be allocated by businesses in Pakistan’s telecom sector. When this correspondent contacted the spokesperson of PTA as to why it has failed to attract the major telecom companies except Ufone in the auction, he said that the auction process was completed with assistance of reputable international consultants and after thorough consultations with cellular industry and other stakeholders. All mobile operators were provided with equal, transparent and fair opportunity to bid in the spectrum auction, and the operator who needed spectrum had bought it. The rest did not participate due to their own business considerations. Moreover, the operators only expressed their intention to top up in the 1800 MHz band. The total written demand by them was less than what has been sold.

When asked about the salient features about spectrum auction design with increased price and increased requirements of quality of service and roll out, he said that the PTA proposed efficient spectrum auction design with support of globally reputed auction consultants. It was a well-designed auction process providing equal opportunities to all mobile operators not only to buy additional spectrum in 1800 MHz and 2100 MHz but also to make contiguous their existing spectrum holdings. Ufone availed this opportunity and bought additional spectrum and standardized its spectrum holding to provide better efficient quality services to its consumers.

The process of base price determination was conducted by a reputable international consultant after detailed study in line with international best practices and regional auctions. The base price and other terms were ratified by the Auction Advisory Committee, ECC and the federal cabinet.