PTA Rejects Operators’ Demands Regarding Upcoming 4G Auction

The government has rejected the demands of Mobile operators of further delay and cut in the base price of $295 million fixed for the upcoming spectrum auction (4G), it is learned.

Pakistan Telecommunication Authority (PTA) has scheduled to hold auction for Next Generation Mobile Services (NGMS) spectrum (3G/4G) on May 24, 2017.

According to official sources mobile operators conveyed PTA that the base price of $295 million would appear to be at odds with the principles established at the time of the 2014 auction. Whereby, the price was to be set at the price of the proceeding auction [Ref. 8.7.2 of the Telecommunication Policy, 2015].

The yield under the 2014 NGMS auction for 1800MHz LTE frequencies was $210m and as per Policy any further assignment of spectrum (following a spectrum auction) would be fair and ensure that it does not discriminate against other licensees.

Therefore, clarity on the principles of the assessment of base price $295 million was required.

Telecom operators further stated that reserve prices play an important role in spectrum-auction design. The reserve price of $295 m for 2X10 MHz of 1800 is 40% higher than the previous base price of $210 m for 2X10 MHz block in same band.

“Current base price is too high and no justification has been provided for such astronomical increase”, said the telecom operators while adding that there is always high risk of auction failures if base price is set too high.

Citing a study by Plum consulting (Reserve Prices in Spectrum Auctions: Why Size Matters – 2016), the operators said that if operators pay more for spectrum than its competitive market value, there is a risk that this will lead to lower network investment, reduced quality of service, and higher consumer prices.

Rather than focusing on revenue maximization, focus should be on the positive social and economic outcomes generated by the use of widespread mobile services, while facilitating an appropriate level of industry competition, recommended the operators.

Lower, realistic reserve prices for spectrum auctions allow the market to determine the appropriate market value of the spectrum being released.

It must also be noted that “per MHz” price determined for the radio frequency spectrum for 850 has remained the same as was determined for 850 MHz ($291 for 7.38MHz). The per MHz price remained the same ($39.5 per MHz) in the auction of 2014 and 2016.

In response, PTA responded that base price was fixed by Auction Supervisory Committee while keeping in view various factors such as, consultant report on market assessment, benchmarking with other countries, price ratio comparisons between different spectrum ranges, ecosystem development, handset prices and equipment cost.

The telecom operators were further informed that government of Pakistan under Section 8(2) of Pakistan Telecom Re-Org Act 1996 issued the Policy directive dated 27th March 2017 containing the base price of $295 million for 10 MHz paired spectrum as a single block.

The operators had also said that investments of significant magnitude, such as for Spectrum, require the approval by the respective Board of directors of prospective applicants as well as the Board of Directors of the shareholding groups.

Given the proposed timeline of only one working week between finalization of IM and submission of bids; it is impractical to calling for all of the required Board of Director meetings etc.

In view of this, the operators had requested, the NGMS Spectrum Auction should be delayed by further 15 days i.e. around 15th June, 2017.

PTA, however, responded that NGMS auction process has to be completed in minimum possible time within financial year 2016-17 as per Policy directive issued by government.

The revised schedule is uploaded before 30th June, 2017 on PTA’s website, remaining in time limits as mandated by Policy directive.

  • Budget is near, HUGE deficits again. Government is hell bent to complete the auction in this month. Question is how will this rejection impact the auction if these telecos are not prepared to participate on ‘short notice’.

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