A bird in hand

BR Research September 6, 2019

A bird in the hand is worth two in the bush. Especially when the avian is a golden goose that is unwilling to yield. The long-running dispute over telecom license renewal has apparently reached a strange compromise. (For a background, read: “License renewal: meet halfway,” published June 27, 2019). Both parties can go home happy, but with question marks over long-term implications of a short-term fix.

So what has been the resolution? Lately, the government had determined a license renewal fee of $450 million for Telenor and Jazz (Warid) to renew their licenses that had expired on May 25. Earlier this week, the finance minister announced that Telenor had paid $224.6 million and Jazz Rs35.39 billion. That amounts to 50 percent of the renewal fee for each of the two operators.

Who has belled the cat? As per the PTA, this partial payment has been deposited with the government “in compliance with the directions of the Islamabad High Court”. And what will become of the remaining 50 percent? Well, indications are that the court will rule on a final price and the remaining amount, adjusted for the sum already paid, will have to be settled later on.

Does it really fall under a win-win? Well, the government has bagged over Rs70 billion – the cumulative figure on this account will cross Rs100 billion after Zong also partially pays up for its license, which expires in October. Besides, bureaucratic fears over potential NAB inquiry in this billion-dollar issue have been put to rest. Also, in a way the government hasn’t lost a penny in FY20 on account of license renewals – as per the norm, operators would have paid upfront 50 percent of $450 million anyway.

As for the Telco executives, they can rest easy in their HQs with a smile on their face. They have paid something significant upfront to ensure their right to business continuity while the dispute still lingers in the court. From their perspective, this transaction may well be history. And that leads to a few problems associated with the government’s short-term, fiscal-minded approach that has been followed here.

There is a strong likelihood that the litigation may take years to resolve, making the government’s recovery of remaining 50 percent ($674 million, or Rs106 billion on current rupee/dollar parity) suspect. The final ruling of the IHC will likely be appealed by the aggrieved party at the Supreme Court. There, the matter may take long, just as it has in some other cases involving significant disputes between the federal government and the private sector.

Perhaps more alarmingly, the controversy over pricing for license-renewal may influence future transactions involving new spectrum sale. Some telecom experts are of the view that license renewal fee cannot set a precedent to price a spectrum auction. It’s a fair point. However, in reality, the PTA had used the per MHz price from the latest spectrum auction to arrive at the per MHz fees for license renewal.

What is to suggest that this litigation experience won’t stop operators from approaching courts during spectrum auctions as well? Arbitrary criteria for license renewals and spectrum auctions are bound to fall on their face if and when they are put through the ordeal of subject-matter-expertise by the honorable courts.

To avoid the government losing credibility and potential investments, it has been repeatedly advocated to follow pricing criteria that are based on technical analysis and market realities, as well as the need for tech-assisted development. Alas, the can has been kicked down the road by the proverbial policymaker. The sectoral and fiscal implications for this policy copout do not look pretty at the moment.

Copyright Business Recorder, 2019

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