The Indian Supreme Court ruling of February 2 - which canceled 122 telecom licenses issued in 2008, on grounds of under-pricing and alleged corruption - must have given heebie-jeebies to the authorities at home who are eyeing to lock in over $800 million through auctioning mobile spectrum licenses next month. Judging by recent history in Pakistan, the scare of the apex court, hanging like the "Damocles sword", is not unfounded; especially when the opposition groups in the Parliament recently termed the yet-to-be-conducted spectrum auction a "loot sale". This was quickly turned into hearsay by some sections in the broadcast media, which fueled dreadful expectations of another "mega scandal in the making". Unfortunately, there are many things, which have to be understood better and kept in the right perspective before jumping to conclusions. A number of issues and objections have been raised, the most audacious being that the "base price" of the mobile spectrum (3G/4G/LTE), set at $210 million per license, seems very low, compared to $291 million per license fetched through the last auction in April 2004. First, the ase price is not some arbitrary figure: it takes into account last auctions pricing, population size, GDP per capita, investment environment, and other factors, including comparison with other countries having 3G licenses. This has to be understood that ase price is just a starting point of the open outcry, multiple-round bidding process which will continue until there are no further bids. So, the final price will essentially be higher than the base price. Moreover, this impression is wrong that the spectrum is being sold cheap compared to the 2004 auction. A better way to compare the two auctions, according to sector experts, is by contrasting the spectrum price "per MHz per year". For instance, Telenor paid the peak price of $291 million in 2004 to buy a spectrum (13.6MHz for duration of 15 years), against a base price of $240 million. The comparison reveals that this auctions base price, at $1.176 million per MHz per year, is smaller than that of the upcoming spectrum (9.8MHz for 15 years) auction, which comes out to be $1.428 million per MHz per year. Similar comparison reveals that the base price for the upcoming auction of now-defunct Instaphone license (7.38MHz for eight years) is greater than the base price of 2004 auction by a whopping $1.45 million per MHz per year. Even when compared with the 2004 auctions peak, winning price ($291 million), the base prices of the upcoming auctions is higher. Concerns have also been raised as to why there be a single base price for three different technologies, i.e. 3G, 4G and LTE. "Well, the government is selling frequency spectrum, not etwork technology! In better interest of competition and non-discrimination, this auction is echnology-neutral, which means that the winning bidders can deploy either of these three network technologies," explained a telecom expert. It must be noted that the 2004 auction was also technology-neutral, as the operators were allowed to run their networks on technologies like CDMA or GSM. Another misgiving is over license fees payment, which feeds on the unresolved issues between PTCL and Etisalat. A little reading of the PTAs information memoranda on these auctions will tell that the winner(s) of the 3G/4G/LTE spectrum will be required to pay up their license fee(s) within sixty working days from the auction result notification date, failing which the license would go to next highest bidder(s). In the case of Instaphone-license auction, the PTA IM states that the winning bidder would initially make a 50 percent payment of the final price and settle the rest in five equal, annual installments. "This shouldn raise eyebrows because such treatment had been granted to the successful winners of the 2004 auction and to another telecom operator whose license was later renewed", noted a telecom professional. It will be in Pakistans greater interest if the concerned authorities maintain acute transparency during the auction process and other stakeholders treat things on merit. The current political regime maybe a bête noire to many; yet one must be objective while commenting on a high-value development in a sector which funneled nearly third of total FDI inflows in the country in last 7 years. Here is hoping that the freedom of debate is accompanied by some freedom of thought!
=================================================
Upcoming mobile licenses auction
=================================================
Spectrum Cellular
(3G/4G/LTE) (Instaphone)
=================================================
Frequency band 1900/2100 MHz 800 MHz
No. of licenses Three One
Frequency size 9.8 MHz 7.38 MHz
Base Price $210 mn $155 mn
Duration of License 15 years 8 years
Bidder qualification 12-Mar-12 12-Mar-12
Bid earnest money $31.5 mn $23.25 mn
Date of auction 29-Mar-12 28-Mar-12
=================================================
Source: PTA (Information Memoranda, Mobile Cellular License/Spectrum (3G /4G/ LTE) Auctions, Jan. 2012)
Comments
Comments are closed for this article.