Home Business framework Poor response to spectrum auction exacerbates government’s financial woes

Poor response to spectrum auction exacerbates government’s financial woes

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ISLAMABAD: In a major setback for the government, claims to raise US $ 1 billion through RF spectrum auctions failed to achieve the lofty goal, as the Pakistan Telecommunications Authority (PTA) received a poor response under the NGMS (New Generation Mobile Services), with no new market entrants or major operators showing interest in participating, a senior official said.

“In order to reduce the budget deficit, the government had allocated certain sectors through which funds could be generated in a simple way. The telecommunications sector, being one of the country’s largest and most widespread service sectors, was a prime candidate in this regard. The PTA has published a framework for spectrum auctions for NGMS licenses in Pakistan in light of a government policy directive.

The purpose of the auction, the official said, was to sell spectrum and additional licenses in the 1800MHz and 2100MHz bands to existing and possibly new telecommunications operators. The federal government, in its August 4, 2021 policy directive, allocated a base price of $ 31 million (per MHz) in the 1800MHz band and $ 29 million (per MHz) in the 2100MHz band. The PTA has put up for sale a total of 27.8 MHz (12.8 MHz in 1800 MHz and 15 MHz in 2100 MHz), with the total value of the auctioned spectrum exceeding $ 830 million (at base price).

The PTA faced multiple issues and setbacks throughout the pre-bid process. Initially, the PTA proposed excessive deployment obligations for potential bidders, equivalent to coverage of 5% of the population per year. After extensive consultation and feedback from current operators, the PTA reduced these obligations to 3pc. However, operators have demanded that these stringent requirements be removed altogether, given the already high deployment obligations they have to meet under existing licenses. Operators also communicated to the PTA other glaring legal and policy issues in the auction process (e.g. no capping or rationalization of spectrum in other RF bands, no framework for spectrum or infrastructure sharing, no framework for national roaming, no insurance on spectrum interference, etc.), which were also ignored by the PTA.

Several realities on the ground such as the right of way problems and the declining profit margins of existing operators have been ignored by the PTA. In addition, the harmonization of licenses with increased obligations and over-taxation were also major issues under discussion during the consultation phase.

It seems the PTA’s tough stance during this auction consultative process and the legacy issues like spectrum interference, 2G license disputes, regulation, etc. No offers were made by the main operators. The partly state-owned Ufone was the only saving grace, as it was the sole bidder for the 1800 MHz spectrum. No new entrant has made an offer on a spectrum product. The result is that the majority of the spectrum reserved for auction will remain unsold, despite the fact that most operators urgently need additional spectrum (due to ever increasing demand for service, the deployment of new technologies and population growth. ). This auction was accompanied by the catastrophic failure of the PTA, the FAB and the MOIT, both diplomatically and socio-economically. China is a long-time diplomatic ally of Pakistan and its public operator did not participate in the auction. This is a major diplomatic setback, as the 2014 auction generated great interest from the Chinese government, as not only around US $ 306 million was invested, but also paid out in the form of lump sum advance plus 10% income tax. The only operator who has expressed his intention to participate in this auction is 60% owned by the GOP. The remaining 40% shareholder, Etisalat, is already in default of the government to the tune of around $ 800 million.

The interest offered by state-owned Ufone will not help the government meet the revenue target, as the money will only change pockets. Other news has circulated over the past two years that Etisalat and GOP may get rid of their shares in Ufone and Ufone’s participation in the auction may facilitate backdoor entry for a new investor. interested in buying the shares of Ufone without complying with the requirements of the privatization laws.

The mismanagement of this auction by the PTA and its conduct over the years with existing operators has eroded the confidence of investment entities and created an environment which is not conducive to new business or other investment from the share of existing operators. In a business environment characterized by declining profits, coupled with coercive government agencies, further development or investment is unlikely to be allocated by companies in the telecommunications sector in Pakistan. When this correspondent contacted the spokesperson for PTA to explain why he had failed to attract major telecom companies except Ufone into the auction, he said the auction process auction had been completed with the help of reputable international consultants and after extensive consultations with the cellular industry and other stakeholders. . All mobile operators were given equal, transparent and fair opportunities to bid for spectrum auctions, and the operator who needed the spectrum had bought it. The others did not participate due to their own commercial considerations. In addition, the operators have expressed their intention to recharge only in the 1800 MHz band. The total written demand on their part was less than what was sold.

Asked about the main features of spectrum auction design with increased price and increased QoS and deployment requirements, he said the PTA has come up with efficient spectrum auction design with the support of specialist consultants. world famous auction. It was a well-designed auction process providing a level playing field for all mobile operators not only to purchase additional spectrum in 1800 MHz and 2100 MHz, but also to make their existing spectrum holdings contiguous. Ufone seized this opportunity and purchased additional spectrum and standardized its spectrum portfolio to provide better quality services to its consumers.

The process of determining the base price was carried out by a reputable international consultant after a detailed study in accordance with international best practices and regional auctions. The base price and other conditions have been ratified by the Auction Advisory Committee, the ECC and the Federal Cabinet.