Expect new players to be interested in the auction, says Saeed Ahmed Khan, former IT Secretary

BR Research: The auction of 3G licences has been the buzz for quite some time, but no date has been announced yet. What has been the progress on this front?
Saeed Ahmed Khan: For the last two years the ministry has been in contact with the Federal government. There were two major issues with the auction of new licenses. According to the Telecom Policy, while you were going to auction 3G spectrum, new players would be invited. It was open for new and existing players, but soon after the policy was promulgated, the GoP entered into an agreement in 2006 with Etisalat which has a clause that GoP would not issue any LDI or cellular license for seven years.
So this clause has given a sovereign guarantee that no new player can enter the market until March 2013. This meant that any auction before that time will have to be between existing players only.
But there was a consensus at the high level that new players should be allowed to enter the auction. Consequently, there had been debate over 3G over the past year and a half.
We found a middle ground that the government decided to go for auctioning a licence to new and existing players. But in case a new player wins the licence, it will lay down infrastructure, but will not be operative till March 2013. Practically speaking, this length of time is needed anyway. So now the auction will take place in March 2012.
BRR: What framework has the government developed to conduct the auction?
SAK: The government is keen to generate investments and employment while at the same time revenues are also important so this represents a balanced approach on the part of the government. To achieve these goals the government has formulated two committees.
The Supervisory committee will monitor the entire process of the auction; its base price and whether it is SMRA (Simultaneous Multiple-Round Auction) or outcry. There are four federal ministers in this committee including Minister for Finance Hafeez Sheikh, Minister for Water and Power Naveed Qamar, Minister for Privatisation Ghous Bux Khan Maher and Minister for Petroleum and Natural Resources Dr Asim Hussain. Secretary Finance, Secretary MOIT, Chairman PTA, Member Telecom and Executive Director Facilitation Board are also members of this committee. Our Director Wireless is the Secretary of this committee.
This committee then constituted a sub-committee that has two tasks: to come up with a base price, keeping in mind revenue and technology. They are holding meetings daily to make sure that a robust framework is developed.
BRR: Is there any benchmark for the price of this license?
SAK: Frankly I cannot quote you a figure as the committee is working on that. Plus there are many factors such as those that I have described earlier. The last auction took place in 2004. At that time the base price was about $240 million. The formula includes the last auction's price, but also other factors such as population, per capita income and a host of others. Then the government can also increase or decrease the base price being cognisant of the fact that FDIs have been relatively low in recent times and then there is the global economic slowdown.
BRR: Three licenses are to be auctioned. Have any new players shown interest in this auction?
SAK: In other countries you will see that the number of players is generally low. There are two in China, two each in the United States and Britain. We cannot consider India's example because they have not issued national licenses, they have stuck to regional licenses so a person moving from Punjab to Andhra Pradesh will be hit with roaming charges.
We have five existing players and there are possibilities of mergers and acquisitions. I expect new players to be interested in the auction for many reasons. First of all this population of 180 million people presents a huge market opportunity so no investor can ignore it. I do believe that new players will surely show their interest.
BRR: When the license that had been in use by InstaPhone is auctioned, how can competition be affected if a sixth player enters the market?
SAK: Firstly this is not a new license so legally and technically this will not violate the sovereign guarantee. Secondly, the amount of international traffic coming in to the country there are areas where we believe LDI operators are not disclosing the actual quantum of traffic and their rates.
What we need to do is stabilise the domestic rates. Operators have also agreed that the government should evolve such a system that international traffic should terminate at a signal point before it is routed further. They have agreed to the establishment of an International Clearing House (ICH) where clearing will take place and we are already in the process of creating this ICH.
At the moment, expatriates calling Pakistan from abroad are reaping no benefit from lower call rates, as telephone companies are splitting this benefit between themselves. Approved Settlement Rates (ASR) and Access Promotion Charges (APC) have to be revisited and streamlined and we have achieved some progress on these fronts.
The government is also foregoing additional revenue because of the lack of standardisation in these rates, so this process will help improve government revenues which can then be used to further improve the telecom infrastructure in the country. LDIs are on board with these initiatives as are other key stakeholders.
BRR: What will 3G technology mean for consumers in Pakistan?
SAK: Voice quality and data transfer will improve. It would take six to twelve months to roll out the technology.
BRR: What other initiatives is government considering to boost the telecom sector in the country? Are there any plans to attract mobile manufacturers to the country?
SAK: Pakistan's telecom industry is among the highest sectors in terms of government revenue generation. To encourage different sectors the government has announced various incentives in the past for tube wells, tractors and auto industry. Strictly following the Deletion Policy, one hundred percent of car manufacturing should have been taking place in the country by now.
But that is not the case. So we are formulating policies to incentivize the telecom sector in ways that will lead to healthy growth of the sector. In collaboration with the other three ministries, we want to announce these initiatives along with the 3G license auction.
We also have some lucrative facilities available for joint ventures, for example facilities in Haripur, Hazara that were formerly used by Telephone Industries of Pakistan that has become defunct. We have also shortlisted consultants so that manufacturing can take place in the country. We want to attract companies like Nokia and Samsung to set up manufacturing here, there are companies in South Korea that we are considering joint ventures with.
BRR: USF disbursements pale in comparison to the size of its reserves. Industry stakeholders also consider the pace of USF projects is also slow. What is your opinion about the future of USF?
SAK: Disbursement was only low in 2010. However this year (2011) about Rs10 billion have already been disbursed which is the highest tally in the past four years. The board meets regularly and just recently the Prime Minister has completed three agreements in Balochistan.
So this may be a perception, but the fact is that besides a slowdown in 2010, disbursements and progress of USF are quickly moving forward. Government is keen to enhance the progress of information technology and telecommunications in the country and the USF is instrumental in these efforts.
This interview was conducted while Mr Saeed Ahmed Khan still held the office of IT Secretary.