What was largely anticipated has finally happened! Recall that April 14 was the last date to submit sealed bid offers for mobile spectrum auction for 3G/4G services. PTA has made it public now that it received four bids. No bids were received from potential new entrants. All four bids are from existing operators. As expected, Warid Telecom did not bid.
Lack of new entrant participation is disappointing, but the affable Dr. Ismail Shah, Chairman PTA, seemed happy that the spectrum demand was more than the spectrum on sale. Speaking yesterday at an SDPI symposium in Islamabad, he noted that the auction would now certainly move to electronic, incremental bidding rounds in stage 2, which is scheduled for next week on April 23.
One gathers that the 3G spectrum demand would be higher than available spectrum (30MHz). However, it is not clear whether or not 4G spectrum (about 20MHz) was also in excess demand at the base price stage. BR Research later got hold of Dr. Shah, but he was unable to make public more information at that point. Understandably, some aspects of the auction have to be kept super secret till it concludes.
But, based on what is already in the public domain, a few things are clear now. The 7.38MHz Instaphone-legacy spectrum will remain unsold because it received no bid from any new entrant. That strikes out $291 million from the $1.6 billion base price of the entire spectrum on sale.
Because 3G spectrum has excess demand, the 30MHz of 3G spectrum on sale-- whose base price comes to $885 million in total--is set to fetch a higher final price over base price. The 3G spectrum can yield $1 billion (with three or more winners) if the bids undergo an overall increment of 13 percent over base price. Thats a reasonable increment rate, so one can expect 3G licenses to fetch nearly a billion dollars, or even more, depending on operators appetite.
The 4G spectrum heavily impacts the question of auctions financial success, especially when Instaphone license is unsold. Operators may not associate high value with 4G services at this point. Therefore, it is likely that the 4G spectrum would get sold at base price, yielding a maximum of $420 million for the 20MHz on sale. However, one cannot entirely rule out healthy demand for 4G spectrum as well. In that case, even nominal bid increments may lead 4G licenses to yield around $450 million in the stage 2.
Whats the magic figure? From the looks of it, the government is guaranteed at least $1.3 billion of non-tax revenues from this auction. Whether or not the figure will come near or exceed the $1.5 billion mark depends on competition for 3G and relative appetite 4G licenses. More on likely post-auction market landscape later!