Analysis: Was the 3G auction a success?

Published April 24, 2014
- File Photo
- File Photo

On Wednesday Pakistan, finally, entered the age of 3G and 4G. Everyone came away from the long-awaited but much-delayed spectrum auction with something in hand. A senior telecom executive put it like this: “That is the beauty of the way the government had designed the auction.”

While all the four bidders got 3G licences (two each of 2x10MHz and 2x5MHz), the government raised some revenue to keep its budget deficit down. One bidder also purchased a 4G licence. The other three chose not to go for the remaining one, probably for fear of some competition eventually.

The ‘stiff competition’ among the four bidders that the government was hoping to help it fetch a price much higher than the floor price was nowhere to be seen.

That, however, could not prevent Finance Minister Ishaq Dar from claiming credit for gifting Pakistanis a technology that more than 200 countries the world over had long acquired.

The sale of mobile broadband had been on the table since 2008. One reason the previous government couldn’t carry it out was that Mr Dar and his party colleagues repeatedly scuttled the proposal in the parliament on technical grounds.

Thus his party is also, to a certain extent, to be blamed for delaying the spectrum auction that has cost the economy almost half a billion dollars during the past five years or so. The delay also denied consumers a technology that has been available to people even in strife-torn Afghanistan since 2012.

As always, different IT and telecom analysts give different reasons for the ‘shortfall’ in sale revenues of the spectrum licences.

That the government was able to raise $1.182 billion from the sale against its most conservative target of $1.3bn was widely seen as a failure to market the auction properly and bring in new players to create ‘real’ competition.

An analyst for the AKD Securities in Karachi argued: “How could the government expect the bidders to raise their prices when there was no competition and it kept changing its target every few weeks?”

Initially Mr Dar had set a target of raising $2bn (against the budget estimates of about $1.2bn) from the sale but he scaled it down to $1.5bn and finally to $1.3bn. There was pressure on the government from the existing telecom operators who had warned to stay away from the process unless the reserve price was kept down. Then all efforts to bring in new Gulf and Turkish investors, whose presence could have boosted the prices, fell through.

Mudassar Jahangir Mufti, a telecom expert, said that setting a ‘realistic’ reserve price was a complex process. “I think the floor price determined by the government was reflective of our market conditions.

In India 3G penetration is not very encouraging and the companies that purchased 4G licences have not yet been able to roll out the technology. We shouldn’t focus on the sale price; we must focus on the enormous benefits of the new technology to the economy and consumers and the boost it will give to tax revenues.”

He, nevertheless, agreed with the view that the final prices at which spectrum licences were sold didn’t reflect very enthusiastic response from telecom operators. Telecom industry experts hope the number of high-speed data users will grow to anywhere between 25 million and 45m by 2020, which will add around Rs400bn to the economy and Rs23bn to tax revenues.

Additionally, the introduction of the new technology would create 100,000 new jobs and revolutionise e-commerce, e-learning, e-security, etc.

This expansion and improvement in quality requires investment in infrastructure.

“A higher licence price would have compelled the operators to delay investments in their network infrastructure upgrade and expansion as well as raise the cost of services for their subscribers,” said Amir Pasha, a Ufone executive.

The technology has failed to take off in Sri Lanka where the spectrum licence fee had been kept much higher than Pakistan. In the Czech Republic, the auction was suspended when the bidding went too far above the reserve price because it would have burdened consumers with higher costs and low-quality services.

“With average revenue per user of $2.25 in Pakistan being [one of the] lowest in the world, you cannot totally pass on the costs [of licence] to the users,” said another telecom executive who did not want to be named.



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