Auction analysis: Opening act done … the real game starts now

KARACHI: The much-awaited spectrum auction took place yesterday with Pakistan historically embracing the third-generation (3G) and 4G mobile technology. The auction’s successful conclusion was a welcome sight for all — the government, cellular mobile operators (CMO), their customers and industry experts as well. An in-depth analysis shows that while the government hailed it as a major achievement – and it was – there were a few areas where it did fall short.

Every single stakeholder praised the transparency of the process with some even terming this a major achievement of the auction. “The auction was held in an open and transparent way and concluded without any controversies,” Islamabad-based expert on Information Communications Technology (ICT) Parvez Iftikhar told The Express Tribune. “To me, this was the biggest success in the whole process.” Iftikhar’s views were also echoed by the telecom industry that seemed satisfied with the outcome. “The process has been very transparent and provided a level playing field to all operators,” Telenor Pakistan said in a statement. “We are satisfied with the end result as it is in line with our investment and overall ambition of providing internet to all.” Ufone Chief Executive Officer (CEO) Abdul Aziz, too, was pleased after the CMO managed to earn some spectrum in the 3G band. “This is a major milestone not just for Ufone but also the telecommunication industry of Pakistan in general,” he said. Though the government was not able to sell the entire available spectrum, the results were almost in line with the target it had set a year ago. During his budget speech for fiscal 2014, Finance Minister Ishaq Dar had set a target of $1.2 billion under non-tax revenues. The amount was supposed to be earned from the spectrum auction. The government managed $1.1 billion. The government was able to sell the entire 30 megahertz (MHz) spectrum it had in the 3G band, while also making money for the 10MHz spectrum in the 4G band. The 850 MHz spectrum, which was reserved for a new player, and another 10MHz of spectrum in the 4G band remained unsold. Iftikhar, a leading consultant on the 3G spectrum, said the government should be able to auction the unsold spectrum in a couple of months, which could take their total earnings – including the amount it raised on Wednesday – to $1.6 billion. The former managing director of Universal Service Fund, however, insisted the auction’s success should not be attributed to the earnings alone. Iftikhar is not the only ICT expert with such an opinion. Martin Sims, a London-based expert on spectrum evaluation, expressed similar views. “In the Pakistan auction, as in auctions generally, there is an excessive focus on the amount raised and much of the thinking is simplistic and misguided,” said Sims, who is associated with UK-based Policy Tracker. “It is not the case that the more money is raised more successful the auction.” The amount raised, Sims says, seems to be within reasonable expectations, particularly seeing the number of players. “An injection of capital for the treasury is always welcome but this is the warm-up act and not the main event.” While the government seems to have done well overall, there are some areas that experts believe it could have done better. “Pakistan Telecommunication Authority (PTA) should not have restricted the 850MHz spectrum – of the defunct Instaphone – to new operators,” said Iftikhar. This is a lucrative spectrum all over the world and has demand in Pakistan, he said. “Had they not restricted this to a new player, it would have gotten sold,” he said. Iftikhar further said the PTA should not have tied the 4G spectrum with the 10MHz spectrum in the 3G band. “By doing that, they restricted operators who bought 5MHz spectrum to bid for 4G.” If this condition wasn’t in place, there might have been some competition in that area, he added. Sims voiced the same view. “Failing to sell all the licences in the most popular 4G/LTE band – 1800 MHz – does not seem a mark of success,” he said. The prices achieved, too, are on the lower side compared to other auctions in other countries. The global average auction price is $4.17 billion and that for developing countries is $2.68 billion, said Sims – higher than what Pakistan earned. On the bright side, the fact that four mobile operators went home with some spectrum in 3G showed the industry is going to remain competitive, which would keep prices under pressure and, in turn, benefit consumers. While Wednesday’s auction was certainly a landmark achievement by the government of Pakistan, Islamabad could have done much better had it auctioned these licenses a decade ago. If Pakistan had auctioned the licenses 10 years ago, the economic benefit would have been greater, with the software industry having a much longer time frame to take benefit from the technology. Published in The Express Tribune, April 24th, 2014.