Over a billion dollars and no takers
Arbitration tribunal should be set up to resolve telecom spectrum fee issue
A telecommunications tower. PHOTO: REUTERS
ISLAMABAD:
An opportunity of over $1 billion in spectrum fee plus follow-up infrastructure investment on the ground is slipping away for want of resolution of some regulatory issues, for over a year now.
It is quite a paradoxical situation. While globally businesses are finding information technology (IT) and telecom services as the panacea to survive under the new world order in the Covid-19 milieu, and economies are desperately scrambling to ramp up their telecom networks, Pakistan’s telecommunication is in a state of hibernation.
Generally, due to Covid-19, foreign investors are moving money away from emerging markets, and reportedly about $100 billion has already been withdrawn. Pakistan is, therefore, fortunate. But it does not seem to be pushed to capitalise on the available opportunity.
Dispute
Let’s try to understand as to what the dispute is. Without going into too many details, there appear to be six issues/sub-issues: (a) Whether the renewal price of old spectrum should be the same as the initial price, or should it be the price discovered in another recent auction for new spectrum? (b) Should the spectrum price be pegged to the US dollar, when revenues are in Pakistani rupees? (c) How challenging the new technical specifications and rollout obligations of the revised licence template should be? (d) Whether a late payment fee, for the cases that are in court, should be applicable? (e) What would be the interest rate applicable to the installments? (f) How to immediately allocate the additional (the so-called top-up plus new) spectrum – importantly, not just in the four provinces but also in Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan.
The required additional spectrum is available with the government, and it can yield hundreds of millions of dollars from “thin air”. In fact, having the spectrum and not putting it to economic use is waste of a precious national resource.
The dispute landed in the court of law over a year ago. In the best case scenario for the government, the telcos may lose the case, and have to pay the amount. But what about the value of the precious time lost? With one year already gone, nobody knows how many more years will go by.
Neither the government/regulator can afford to ask the existing telcos to pack up and go away, nor can the telcos afford to do it on their own.
What could be the solution? The dispute appears to have its roots in the recent history of Pakistan telecom. So, before attempting to propose a solution, let’s briefly look at the history.
History
Starting in the late 80s and culminating in 2005, Pakistan’s telecom sector was deregulated and management control of the only telecom operator, T&T Department (presently PTCL), was handed over to a private company.
This deregulation/privatisation was in line with the best practices in the world, and it proved to be in the best interest of the country as well.
In the following years, billions of dollars of foreign investment flew into Pakistan. This was also the result of some excellent ease-of-doing-business policies and industry-friendly initiatives of the Ministry of IT and Telecom and telecom regulator Pakistan Telecommunication Authority (PTA).
By 2008, Pakistan had raced ahead of every country in the region, particularly in terms of tele-density, which was a major parameter of success at that time. But then we started falling behind.
The data revolution brought by 3G was delayed for at least six years as the spectrum needed for 3G was allocated in 2014, instead of 2008. Hopefully, one day someone will calculate the economic cost of that delay which the nation had to bear (alarmingly, the history seems to be repeating itself).
In the meantime, thanks to the advent of fourth generation (4G) mobile broadband internet, the usefulness of telecom has soared sky high. It would not be an exaggeration to say that today nothing works without telecom/internet – economy, commerce, education, industry, healthcare, banking, new business models, freelancing … in short everything.
But the telecom/internet is entirely in the hands of private businesses. This has created a dilemma.
Dilemma
Private businesses are seen by many in the corridors of power as nothing more than sources of revenue for the government. This mindset persists not just in the case of spectrum licences, but also in cases like granting right of way for optic fibre cables and other telecom infrastructure.
On one side, the government considers it justifiable to burden private businesses with all kinds of levies and taxes, while on the other side the government is completely dependent on those very private businesses to fulfill its obligation of delivering telecom services. There is no doubt that the privately held telecom companies’ main objective is to maximise their profits. If they are unable to operate, they lose profits. But the unfortunate dilemma is that in that event the country loses even more.
Currently, despite the telecom’s tremendous – and rapidly growing – potential, Pakistan’s low rankings in global ICT indices show that telecom is not doing too well.
For example, the Economist Intelligence Unit’s Inclusive Internet Index 2020 overall ranks Pakistan 76 among 100 countries (Bangladesh is at 70, Myanmar at 67, Sri Lanka at 56 and India at 46).
We have far less allocated spectrum, and one of the lowest optic fibre penetration. No noteworthy investment is being made to make improvement.
Prime Minister Imran Khan has vowed to invest massively in building a strong knowledge economy, but knowledge economy does not work without widespread, ubiquitous, affordable and quality broadband internet.
His office also pushed for the resolution of regulatory issues in February 2020. But somehow even that did not work.
Possible solution
Back to the ongoing dispute, ideally, it should have been settled through negotiations in a spirit of give and take. If the country’s prime minister can sit in front of TV cameras for hours just to collect half a billion rupees, the officials, who are all patriotic, honest and competent, could surely negotiate with investors for hundreds of billions of rupees.
Especially, when that would also bring other infrastructure investments that the telcos have been putting on hold due to the uncertain situation. Add to that the snowball effect of those investments on the economy.
However, since everything else has failed, a viable option appears to be that the prime minister appoints a three-member Arbitration Tribunal, under the Arbitration Act 1940, to resolve the matter within a specified time limit, of say 60 days. It should be a ‘Tribunal’, and not a Committee, as that has also been tried already. Understandably, both sides will have to agree, withdraw the court cases and accept that the Tribunal’s decision would be binding on them.
The dispute is not something unresolvable. No dispute is.
The writer is former CEO of the Universal Service Fund and is providing ICT consultancy services in several countries of Africa and Asia
Published in The Express Tribune, June 8th, 2020.
An opportunity of over $1 billion in spectrum fee plus follow-up infrastructure investment on the ground is slipping away for want of resolution of some regulatory issues, for over a year now.
It is quite a paradoxical situation. While globally businesses are finding information technology (IT) and telecom services as the panacea to survive under the new world order in the Covid-19 milieu, and economies are desperately scrambling to ramp up their telecom networks, Pakistan’s telecommunication is in a state of hibernation.
Generally, due to Covid-19, foreign investors are moving money away from emerging markets, and reportedly about $100 billion has already been withdrawn. Pakistan is, therefore, fortunate. But it does not seem to be pushed to capitalise on the available opportunity.
Dispute
Let’s try to understand as to what the dispute is. Without going into too many details, there appear to be six issues/sub-issues: (a) Whether the renewal price of old spectrum should be the same as the initial price, or should it be the price discovered in another recent auction for new spectrum? (b) Should the spectrum price be pegged to the US dollar, when revenues are in Pakistani rupees? (c) How challenging the new technical specifications and rollout obligations of the revised licence template should be? (d) Whether a late payment fee, for the cases that are in court, should be applicable? (e) What would be the interest rate applicable to the installments? (f) How to immediately allocate the additional (the so-called top-up plus new) spectrum – importantly, not just in the four provinces but also in Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan.
The required additional spectrum is available with the government, and it can yield hundreds of millions of dollars from “thin air”. In fact, having the spectrum and not putting it to economic use is waste of a precious national resource.
The dispute landed in the court of law over a year ago. In the best case scenario for the government, the telcos may lose the case, and have to pay the amount. But what about the value of the precious time lost? With one year already gone, nobody knows how many more years will go by.
Neither the government/regulator can afford to ask the existing telcos to pack up and go away, nor can the telcos afford to do it on their own.
What could be the solution? The dispute appears to have its roots in the recent history of Pakistan telecom. So, before attempting to propose a solution, let’s briefly look at the history.
History
Starting in the late 80s and culminating in 2005, Pakistan’s telecom sector was deregulated and management control of the only telecom operator, T&T Department (presently PTCL), was handed over to a private company.
This deregulation/privatisation was in line with the best practices in the world, and it proved to be in the best interest of the country as well.
In the following years, billions of dollars of foreign investment flew into Pakistan. This was also the result of some excellent ease-of-doing-business policies and industry-friendly initiatives of the Ministry of IT and Telecom and telecom regulator Pakistan Telecommunication Authority (PTA).
By 2008, Pakistan had raced ahead of every country in the region, particularly in terms of tele-density, which was a major parameter of success at that time. But then we started falling behind.
The data revolution brought by 3G was delayed for at least six years as the spectrum needed for 3G was allocated in 2014, instead of 2008. Hopefully, one day someone will calculate the economic cost of that delay which the nation had to bear (alarmingly, the history seems to be repeating itself).
In the meantime, thanks to the advent of fourth generation (4G) mobile broadband internet, the usefulness of telecom has soared sky high. It would not be an exaggeration to say that today nothing works without telecom/internet – economy, commerce, education, industry, healthcare, banking, new business models, freelancing … in short everything.
But the telecom/internet is entirely in the hands of private businesses. This has created a dilemma.
Dilemma
Private businesses are seen by many in the corridors of power as nothing more than sources of revenue for the government. This mindset persists not just in the case of spectrum licences, but also in cases like granting right of way for optic fibre cables and other telecom infrastructure.
On one side, the government considers it justifiable to burden private businesses with all kinds of levies and taxes, while on the other side the government is completely dependent on those very private businesses to fulfill its obligation of delivering telecom services. There is no doubt that the privately held telecom companies’ main objective is to maximise their profits. If they are unable to operate, they lose profits. But the unfortunate dilemma is that in that event the country loses even more.
Currently, despite the telecom’s tremendous – and rapidly growing – potential, Pakistan’s low rankings in global ICT indices show that telecom is not doing too well.
For example, the Economist Intelligence Unit’s Inclusive Internet Index 2020 overall ranks Pakistan 76 among 100 countries (Bangladesh is at 70, Myanmar at 67, Sri Lanka at 56 and India at 46).
We have far less allocated spectrum, and one of the lowest optic fibre penetration. No noteworthy investment is being made to make improvement.
Prime Minister Imran Khan has vowed to invest massively in building a strong knowledge economy, but knowledge economy does not work without widespread, ubiquitous, affordable and quality broadband internet.
His office also pushed for the resolution of regulatory issues in February 2020. But somehow even that did not work.
Possible solution
Back to the ongoing dispute, ideally, it should have been settled through negotiations in a spirit of give and take. If the country’s prime minister can sit in front of TV cameras for hours just to collect half a billion rupees, the officials, who are all patriotic, honest and competent, could surely negotiate with investors for hundreds of billions of rupees.
Especially, when that would also bring other infrastructure investments that the telcos have been putting on hold due to the uncertain situation. Add to that the snowball effect of those investments on the economy.
However, since everything else has failed, a viable option appears to be that the prime minister appoints a three-member Arbitration Tribunal, under the Arbitration Act 1940, to resolve the matter within a specified time limit, of say 60 days. It should be a ‘Tribunal’, and not a Committee, as that has also been tried already. Understandably, both sides will have to agree, withdraw the court cases and accept that the Tribunal’s decision would be binding on them.
The dispute is not something unresolvable. No dispute is.
The writer is former CEO of the Universal Service Fund and is providing ICT consultancy services in several countries of Africa and Asia
Published in The Express Tribune, June 8th, 2020.