3G auction: Another InstaPhone in the making?

If the government auctions three 3G licenses, a market will emerge with three 3G operators and two GSM operators.

Recent developments regarding the 3G auction has got the industry abuzz with discussion about the modalities and outcome of a possible auction later this year.

Though we are not yet aware of the type and kind of auction the government has planned, but from preliminary reports it seems likely that an open-bid auction that must start from a predetermined price will take place for 3G licenses.

If reports are to be believed that three 3G licenses will be auctioned, this will leave at least two cellular companies without 3G in the coming years, assuming no outside operator will buy a license.

In other words, a market will emerge with three 3G operators and two GSM operators. This scenario (with a little variation) is something Pakistan is familiar with, i.e. four GSM operators and two AMPS networks namely InstaPhone and Paktel.

What happened to InstaPhone and Paktel isn’t a mystery to anyone. But for the record – both the operators resulted in huge loss, layoffs, monetary deprivation for vendors, license fee loss for government, business closures for franchises and distributors among other things.

It is time for Pakistan to learn from past experiences and failures. Instead of pushing two operators away from the new technology – just to make bidding successful (in the government’s viewpoint by raising more money) will be a suicide attempt for the national economy.

Early reports regarding the 3G auction suggest that each licensee will be awarded with 10MHz spectrum from 2100 MHz spectrum – which translates into 30 Mhz of total frequency that the government of Pakistan has allocated for 3G licenses, while the rest is likely to be used by agencies or military, as claimed by sources.

Instead, the government should auction five licenses of say 10MHz each totaling 50 MHz or they can auction 20 blocks of say 3/2.5 MHz each (like they did in Germany). This will lessen the overall cost of license to incentivize the operators to move ahead.

3G auction experiences in Italy, Netherlands, Switzerland suggest that weaker operators drift away from auctions vey early, leaving little competition for the remaining to bid. If this fact is coupled with current economic downturn and local market ARPU – one can forget about high bids by limiting the license.

Instead, if the government really wants to capitalize on the situation then five licenses at a pre-determined price would be the best deal to offer.

In addition to the above theory, absence of a MVNO is deal breaker for any operator without a 3G license. Meaning that there won’t be any option left for 3G-less operators but to wrap up their businesses and go back home.

A version of this post originally appeared on ProPakistani.pk