3G/4G auction

Pakistan Telecommunications Authority (PTA) received four bids for spectrum auction for the next generation of mobile services by the 14th April deadline. The contenders include China Mobile, PTCL (Ufone), Mobilink and Telenor. Turkcell did not participate reportedly because it did not find the prospects attractive enough as a new entrant in the Pakistani market with five existing telecom operators already engaged in tough competition. This implies that the inclusion of spectrum 850 MHz with the specific objective of attracting new entrants was simply not a sufficient incentive.
The bid set a base price of (i) 295 million dollars for 10 MHz paired spectrum in 1.9/2.1 GHz frequency band; (ii) 210 million dollars for 10 MHz paired spectrum in 1800 MHz frequency band; and (iii) 291 million dollars for 7.38 MHz paired spectrum in 850 MHz frequency band. The inclusion of 1800 MHz band was targeted to catalyse deployment of 4G.
PTA is evaluating the bids received and will announce the qualified bidders by April 17 and with demand greater than supply allocation is expected to be through auction scheduled to be held on 23rd April. The targeted revenue is 1.3 billion dollars - approximately 126 billion rupees at today's rupee-dollar parity or around 6 billion rupees higher than budgeted and 47 billion rupees higher than stipulated in this budget by former Finance Minister Hafeez Sheikh in 2012-13. While Finance Minister Ishaq Dar in his briefing to the cabinet and the media in January this year had increased the amount to 2 billion dollars from this auction yet one would assume that the 1.3 billion dollar figure released by the PTA is more realistic.
There is no doubt that while the former PPP-led coalition government failed year after year to auction 3G/4G licences, the incumbent government is expected to succeed in less than a year into its term. The reason for the failure of the PPP government to auction the licences was mainly due to inability of the relevant officials to abide by the stipulated procedures and hence it is a measure of improved governance that the auction date has been set for 23rd of this month with no one challenging the procedures.
The auction therefore is welcome news not only for the Pakistani consumers but also for the government as it would generate resources that would further strengthen the net international reserves position (NIR). It would augment the boost that the country's NIR received in late February to early March period with the 1.5 billion dollar 'gift' by the Saudi government with a consequently favourable impact on the external rupee value. Economic theory dictates that strengthening of a currency would have an adverse impact on exports as they become less competitive vis-a-vis the other countries whose currencies have not appreciated in value. Be that as it may, the constant depreciation of the Pakistani rupee during the past seven to eight months of the current year had implied ever rising price of imported fuel with a consequently negative impact on utility rates as well as transport costs. Thus there was a need to arrest that slide and one would hope that lower costs of production combined with requisite rationalisation and drawback incentives would enable the exporters to offer the same prices in dollar terms as before the rupee gained in strength. Thus with the successful auction of 3G/4G telephony spectrum the pressure on the government to borrow to contain its budget deficit would decline which, in turn, would have a further favourable impact on domestic inflation.