Pakistan among countries where high spectrum costs lead to negative outcomes

GSMA report argues high costs restrict ability for network investment

KARACHI: Pakistan is included among countries where high spectrum costs lead to negative consumer outcomes, according to a report released by the Global System for Mobile Communications (GSMA).

GSMA, a trade body that represents mobile network operators worldwide, conducted a study of up to 20 mobile service providers in various developing and developed countries including Afghanistan, Thailand, Jamaica, Austria, Pakistan, Jordan, Venezuela, Israel, Taiwan and Kenya regarding spectrum prices.

Three out of the four telecom operators in Pakistan need to renew their spectrum licences but the companies claim the government is demanding a higher price, which serves as a barrier to good service. The GSMA study concluded that high spectrum costs lead to negative consumer outcomes by restricting the financial ability for network investment.

Government taxes on corporations leave a long-lasting effect, especially on the end-consumers. The same applies to the spectrum licence price that regulators impose on telecom companies so they could provide their services to the masses, the study pointed out. Apart from pricing, other factors that affect quality and affordability include government policies and management. The study highlights that high revenues, generated from a spectrum sale, should not be considered a success.

As a long-term vision, the obstacles in the way of service quality outweigh the benefits of initial gain from the licence revenue. The study suggested that spectrum should be granted as soon as the operator was ready to start the business.

“This results in better consumer outcome, which is crucial in places where good coverage and affordable prices are prioritised,” it said. Also, the artificial scarcity of spectrum results in loss of opportunity in the long term, as per the GSMA study.

“Regulators should collaborate with stakeholders on fairgrounds to enable a time-efficient and effective spectrum licensing process,” it said. “This coordinated approach results in digital inclusion and overall benefit for the society.”

The study used two metrics to analyse the impact of spectrum prices.

First is the unit cost of spectrum per person, which had been high during the years 2011 to 2016 for both developed and developing countries.

Second is the unit cost of the spectrum as a percentage of revenues, which indicates the total revenue made by operators over a period of time.

The data analysed showed that spectrum prices in developing countries were almost three times higher than in developed ones in terms of return on investment.

According to the study, high spectrum prices are also linked to the management and policy decisions of the government/regulators.

“The fact that this pricing can be assigned via non-auction methods, where the government decides the price itself, leads to exploiting the case of being ‘the only seller’ of spectrum in the market,” the study said. “This mostly is the case in developing countries where the economic situation is under stress and the nation is in debt, hence higher the debt, higher the selling price.”

The telecom industry has a spill-over effect, which means that revenue/cost fluctuations will impact many other industries linked to it. Therefore, if the telecom operator is charged high for the spectrum allocation, an overall negative socio-economic situation will be encountered, hampering progress and prosperity.

This is due to the fact that telecom operators would increase tariffs to account for a higher payment. They would also alter their planning and operating expenditure strategies and reduce investment for future improvement. These changes would cause financial stress to citizens of the country, loss of opportunity and working standards for employees and loss/delay in further modernisation and digital inclusion, the study said.

“Another factor which may affect the consumer is that technology evolves fast and the previous one becomes obsolete, therefore, investments made in previous technologies may go to waste,” said the study. 

Published in The Express Tribune, September 22^nd, 2019.

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