The curious case of 3G license auction

That long wait may finally be over as Pakistani mobile subscribers will soon be experiencing the much-awaited third-generation (3G) technology on their networks. Just last week, the Prime Minister gave a go-ahead, in principle, to auction the spectrum for 3G technology. A formal approval from the cabinet is awaited, following which the modalities of the auction will be worked out by the telecoms regulator. By distributing the currently available 3G bandwidth of 30 MHz into three blocks of 10MHz each, three licenses would be put up for the auction. It is a practical decision to have only three 3G operators, because it would be essential for the operators to initially develop the data market and engage in application and content driven competition. The Federal Government has its own reasons to expedite this process. To be able to raise Rs.75 billion allocated in the FY12 budget from 3G auction, it has been decided to offer the 3G spectrum to both existing operators and new players (local and foreign). However, it appears that this auction may not be a smooth ride for the government for a number of reasons. Pressed with its own nagging fiscal concerns, the government would very much like to seal the deal in the coming months. However, it is unclear, given the countrys economic and political situation, as what price the three licenses could fetch during the bidding process. Moreover, it could be difficult to raise the budgeted amount in one go. Successful bidders may choose to pay some of the license fee upfront and the rest in instalments. In this scenario, the government may not be able to experience the desired fiscal relief in FY12. Then, there is a legal issue, one which is linked to the deal signed with Etisalat LLC. The government had sold PTCLs management stake (26 percent) to Etisalat in 2005, for $2.6 billion. The details of the share purchase agreement between Etisalat and the government are not classified. However, past news suggest that to prevent this deal from collapsing in 2006, the then-government agreed to put off selling the new telecom license and spectrum until 2013. For its part, Etisalat still owes the government $800 million since March 2008. The authorities deem 3G to be an extension of mobile telephony technology, and its auction does not violate the agreement with Etisalat. That is why, they have decided to allow only existing operators to rollout their 3G services right away should some among them win the auction. In an apparent bid to avoid irking Etisalat, the government won let any new 3G operator to start its services until 2013. This could effectively limit the chances of a new player entering the 3G market. It would be interesting to see how Etisalat reacts to the governments policy announcements. The government needs to tread cautiously this time around and deal with existing and potential investors prudently. The big guns are ready with 3G-compatible infrastructure, and smaller players may not want to be left behind either. All the stakeholders should be taken on board and any legal controversy should be avoided. Data is the need of the hour for the Pakistani market. The 3G-enabled data services can not only bring value additions in existing communication services, but also revolutionise how businesses are conducted, patients are treated and children are educated, among many other things.