3G/4G auction complete
The Supreme Court (SC) ordered auction of 3G and 4G spectrum licences went ahead on Wednesday with expected results. While the government revised its hopes after the first round of bidding on April 16 showed that $ 2 billion from the sale was a pipedream, the end result was still positive. As far as auctions go, that there were more lots available for sale than there were bidders. This ensured there would be little competition for the allocated bandwidths. The telecom operators ended up with roughly what they aimed for without having to extend themselves too far in the bidding. Above the reserve price for a 10 megahertz (MHz) spectrum licence of $ 295 million, two operators bid at $ 307 and $ 301 million, while two operators purchased 5 MHz licences at the reserve price of $ 147.5 million each. One operator exercised its option to buy a 4G licence at the reserve price of $ 210 million, which was only available to those companies that bought 10 MHz of bandwidth, for technical reasons. The collective price for the 3G spectrum was $ 17.82 million higher than the reserve price of $ 885 million. The government is now $ 1.12 billion richer. The conclusion of this auction is a positive step for Pakistan. Economic studies have shown that there is a positive relationship between broadband penetration and GDP growth in both high and low income countries, through greater productivity as businesses streamline communications; improved outreach to markets and e-commerce opportunities; as a driver for innovation particularly in tech-industries; and by reducing barriers to entry for small businesses by lowering costs. Demand for 3G should spur investment in cutting edge data and telecommunications infrastructure, creating more jobs and increased tax revenues, though the Information Technology (IT) Ministry’s overly optimistic assessment of 900,000 jobs should be taken with a pinch of salt, given its track record.The auction itself brings up interesting observations. First, three foreign companies that already maintain operations in Pakistan felt positive enough about the country’s economic direction to invest further significant amounts here. A Chinese company invested the most and the Chinese commitment to Pakistan is wider than just in the telecommunications industry. However, the other two are European companies that focus on business first. Their participation despite Pakistan’s political uncertainty is a vote of confidence in its economic future. The complexities of the auction process that held it up for so long also highlighted the importance of transparency for a successful auction. Industry experts agree that the reserve prices were fair with regard to current market conditions and international averages. The process on the day remained open, bids were sealed and confidential, and operators felt happy with the results. In the long run, creating a positive business environment is more important than the amounts that may have been earned by pushing the reserve price or introducing new bidders at the last minute. The operators that participated have been in Pakistan for a while and have waited for this auction for several years. They have the required knowledge of the market to effectively roll out the technology and will be the most willing to invest in upgrading Pakistan’s telecommunications infrastructure should they see a positive reaction, which they most likely will. Estimates say that Pakistan could have as many as 40 million people convert to 3G by 2020, though that will probably happen much sooner. No one thought that Pakistan’s cellular market would explode as it did when the industry was deregulated and opened to investment in 2003, but by 2008 Pakistan was the world’s third fastest growing telecommunications market. Pakistanis unexpectedly turned out to be desperate to talk to each other, and while fixed-line internet consumption is low, having internet on their phones is likely to be something many Pakistanis will eagerly embrace. The power of the internet as an educational, financial and informational tool has yet to be realised here, but the conclusion of this auction is a step in that direction.