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Some juicy non-tax revenues are in the offing. After a delay of a few months, the telecom authorities have now kick-started the process to auction spectrum in two radio frequency bands, to help improve mobile broadband services in Pakistan (except for GB and AJK). First came the Ministry of IT & Telecom’s Policy Directive on the subject on August 4. Following day, telecom regulator issued the detailed Information Memorandum (IM) on August 5 for issuance of 15-year, technology-neutral licenses under this auction.

Looking at the IM, if all goes according to the plan vis-à-vis pre-auction modalities, one can expect the spectrum sale to take place from mid to late September. The auction timeline suggests that the mobile network operators (MNOs) will have the time to submit final bids at the earliest until September 10; provisional winners could be announced as soon as September 13 if spectrum demand by the operators comes in lower than what is on sale.

And if high demand moved the process to electronic auction stage, competitive bidding will yield winners around September 25. Based on how demand turns up, it is possible that winners of some spectrum blocks are announced before others. Timelines can change, as the PTA has to go through all pre-auction steps one by one in order to facilitate potential applicants and ensure transparency. It’s going to be a mega auction, the biggest since the April 2014 auction that ushered in 3G and 4G services in the country.

Within the 1800MHz band, 12.8MHz of paired spectrum is up for sale, with a per MHz base price of $31 million. And in the 2100MHz band, 15MHz of paired spectrum is to be sold, at $29 million per MHz. In total, the auction may haul at least $832 million in spectrum fees for the treasury (higher in case of high demand from MNOs). Winners have the option to pay 50 percent of the spectrum fees upfront and the rest in five equal annual installments carrying a markup of Libor plus 3 percent.

In the previous auctions, authorities had levied 10 percent advance tax on spectrum acquisition fees. Let’s see if they do so again. Having been stalled once, it is important to conclude this auction in line with the timelines mentioned in the PTA’s IM. Previously, the auction was delayed in May/June, mainly because of recent changes at the top of the finance ministry, even as PTA had done its homework including hiring of foreign consultants for this auction. Another delay can hurt market confidence.

Given the complexity of the frequency bands involved, the PTA will undertake a “rationalization” exercise of the 1800MHz spectrum band after the auction. This activity will reassign spectrum held by MNOs in this band so that operators enjoy contiguous/un-interrupted spectrum holdings post-auction. There is also a spectrum cap, in that post-auction spectrum holding (existing plus new spectrum) of any operator in the 1800MHz band cannot exceed 40 percent of total spectrum in that band (a ceiling of 30MHz).

As a result, in the 1800MHz band, Jazz cannot bid for more than 5.2MHz and Zong can only bid for up to 7.4MHz. Telenor and Ufone are not subject to this restriction due to their lower current spectrum holdings in this band. Under the quality of service KPIs, PTA has mandated KPIs of minimum data rate of 512Kbps for 3G services and 2Mbps for 4G services. These requirements, which are the same as those in 2016 and 2017 auctions, could have been beefed up a little to provider users with better services.

While the auction is open to new entrant(s), the likelihood of a new player coming in is almost zero, due to stiff competition. Existing players do have appetite for extra spectrum – they need more of it in order to feed data-hungry subscribers, expand 4G networks and (hopefully) improve quality of service. However, there have been grumblings about spectrum auctions being irregular and spectrum prices as high. Let’s see which ones among the four operators take the biggest bite and which ones remain reserved.

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