Cabinet seeks change in approach

Insists on giving up revenue-driven model as it hinders faster broadband expansion

ISLAMABAD:

The government has been urged to give up revenue-driven approach in the auction of additional telecom spectrum as it has hindered the faster and quicker expansion of broadband and digitalisation in Pakistan.

Several cabinet members and Prime Minister Imran Khan have questioned and expressed concern over the failure of officials concerned to attract leading telecom companies of Pakistan to the recently held spectrum auction.

They noted the lukewarm response of the leading telecom operators that refrained from participating in the auction of additional spectrum.

A cabinet member observed that the revenue-driven approach to sell the telecom spectrum needed to be reconsidered as it hindered the benefits that could accrue to the economy.

The government was able to fetch only $279 million against the revenue target of $1 billion through the auction of additional spectrum.

In a recent meeting of the federal cabinet, PM Khan questioned the tepid response from the mobile network operators as three out of the four telecom companies chose to stay away from the bidding process due to a higher base price and stringent conditions.

In the spectrum auction, just 9 Mhz were sold out of the total of 27.8 Mhz available for sale in the 1,800 and 2,100 bands. Ufone was the only telecom firm that participated in the bidding process.

The fact that 62% of the stake in the company belongs to the government of Pakistan implies that the auction failed to attract investment from the foreign sponsors of major cellular network operators.

According to the cellular mobile operators (CMOs), the policymakers completely disregarded their concern about the unrealistic and complex licence conditions.

The inclusion of fresh obligations in new licences would require triple the amount of capital investment compared to the spectrum price in the first three years.

This capital expense would have been paid to foreign vendors, resulting in outflow of foreign exchange and upfront additional capital expenditure for shareholders.

Among the serious concerns expressed by the telecom industry was the offer of spectrum price in dollars instead of rupees, which makes the potential investment risky given the instability of rupee-dollar parity.

The requirement of opening an escrow account by the mobile companies and depositing 50% of the disputed amount in case of a financial disagreement with the Pakistan Telecommunication Authority also deprives the CMOs of their constitutional right of legal discourse in Pakistan.

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Senior telecom experts stressed the need for better connectivity but lamented that the country was saving on the spectrum for nothing.

The question is that the three biggest companies who did not participate in the auction already have billions of dollars of investment so why would they compromise on spectrum which is their fuel and market dynamics will require optimised services. There are clearly major flaws in the auction design.

The spectrum has been priced at an exorbitant level, therefore, its deployment cannot reach the optimum level. Some bands have gone unsold because the policy favoured short-term money rather than long-term economic contribution via broadband development.

Pakistan has deployed only about a third of its potential spectrum while the rest is being wasted.

The CMOs, on multiple occasions, have pointed out that Pakistan’s telecom sector lacks policy and regulatory predictability, which deters long-term investment and severely affects government’s objective of universal digitalisation.

The rigid change in new licence conditions for the CMOs without giving any consideration to their feedback during consultative sessions with the regulator dampened the operators’ interest in the auction.

However, there is an apparent need for offering a higher amount of spectrum to achieve digitalisation and connectivity objectives.

The telecom sector is the most important driving force behind the government’s Digital Pakistan initiative and contributes significantly to Pakistan’s GDP. However, the policymakers’ continuous unilateral approach towards formulating regulations does not create a win-win situation for the telecom users.

The whole process needs to be reviewed holistically and all stakeholders including the CMOs should ascertain the future of Digital Pakistan.

Published in The Express Tribune, September 21^st, 2021.

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