Double jeopardy for telecom

Rupee fall, spectrum price pegged to dollar drive down industry earnings

ISLAMABAD:

Telecom sector’s earnings yielded a negative growth in dollar terms due to the spectrum price pegged to the dollar. This threatens the very survival of the telecom sector.

It was revealed in a recent meeting of the sub-committee on telecom of the Prime Minister’s IT and Digital Economy Advisory Council.

During the meeting, it was revealed that the telecom sector’s earnings in Pakistani rupees yielded a negative growth upon conversion into dollars for foreign investors. The constantly increasing spectrum installment payment was one of the key contributing factors.

It was discussed that the pegging of spectrum price to the dollar instead of the rupee is the most pressing concern of the local cellular mobile operators.

This issue has remained historically unaddressed in all spectrum auction policies and licence renewals. The untenable scenario threatens even a cellular access load-shedding and pushes the country into a digital emergency.

In case of cellular mobile operations, the customers are charged in rupees. The revenue is also earned in rupees, which is then re-invested by the operators to pay for most of the costs including spectrum price and equipment imports denominated in dollars.

Denominating spectrum costs in dollar exposes the operators to huge currency devaluation risk. Likewise, annual spectrum licence installment payments become unpredictably expensive by each passing year.

The ongoing rupee devaluation has further affected an already exorbitant spectrum licence renewal price for mobile operators. Industry players in the telecom sector are facing a double jeopardy in such harsh economic conditions where spectrum prices in dollars have escalated coupled with the devaluation of the rupee.

According to Jazz CEO Aamir Ibrahim, who is also the chairman of telecom sub-committee, “adequate spectrum is a key factor in driving cellular growth but unfortunately, it has not been cost effectively allocated in Pakistan, leading to an artificially driven scarcity of spectrum”.

He added “although there is a significant amount of spectrum available with the government, stringent conditions set for its allocation and continued denomination of spectrum price in US dollar instead of rupee, has made spectrum almost inaccessible for operators”.

While taking into account global best practices and precedents, it becomes clear that no sovereign country sets initial or recurring payment on account of spectrum award in dollars. Denominations in local currency are used even if the original spectrum valuation and benchmarking is done in dollars, he said.

Published in The Express Tribune, August 5^th, 2022.

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