Are we compromising on our digital future?
The spectrum licences for three large telecom operators are up for renewal and reportedly there is a deadlock between the Pakistan Telecommunication Authority (PTA) and telecom operators over the proposed renewal fees.
Spectrums, broken down into bands and blocks, are radio frequencies allocated to telecom companies to run their communication networks. Spectrum is a scarce resource, as not all bands can be used. But not using any usable spectrum is a sheer waste of this precious resource. Countries often use spectrum auctions to generate revenues. But besides being a revenue instrument, they perhaps are the biggest policy lever available to impact the digital future.
Pakistan has had a long history of spectrum auctions and renewals and in the upcoming episode, the government is expected to renew three blocks of 13.5 MHz for about $450 million each, besides auctioning some additional spectrum. The price has been calculated based on two previous auctions. The government is eyeing this opportunity to maximise its revenues and get two billion dollars in its kitty. Apparently the officials have little willingness to go any lower, not only to meet the revenue targets, but also to avoid any undue scandal.
Telecom operators however consider this price exorbitantly high. Although the proposed price reflects a 55% increase over the base price of $291m set in 2004, in rupee terms this amounts to an increase of 264%. Telecom operators rightly claim that since their revenues are in Pak rupee, it is unfair to index the price with dollars. Moreover, considering that the average revenue per user has drastically come down over the years, these prices become all the more steep.
Besides fair pricing notion, it is highly important that spectrum prices create the right balance between revenue maximisation and digital penetration, promote investment and lead to full use of available spectrum.
Research shows that unreasonably high spectrum prices are typical in developing countries, which look at them as an easy way to meet immediate budgetary goals, with little regard to longer-term objectives. Spectrum prices as percentage of GDP per capita have been three times higher in developing countries than in developed markets. In a recent article, Parvez Iftikhar highlighted multiple examples from India, Bangladesh and Thailand, where unfair prices led to auction failures or dismal results.
High spectrum prices are also closely linked to more expensive services for consumers, lower 4G coverage and poor network quality. Despite the fact that Pakistan boasts having 150+ million mobile users and 39% smart phone penetration, it remains the worst performer in South Asia on Mobile Connectivity Index (MCI) with a rank of 143, second only to Afghanistan. The MCI ranks 163 countries on four key parameters: infrastructure, affordability, consumer readiness and content & services. Out of the four, Pakistan scored highest on affordability, because of lower handset prices and low consumer tariffs. With recent increase in duties, the handset prices have already gone up and now tariffs can also shoot up due to high spectrum prices, further worsening Pakistan’s ranking. Moreover, higher upfront investments can discourage the mobile operators to go for wider coverage, which is critical for Pakistan’s digital future.
Ideally the government should delink spectrum prices from dollar and introduce lower spectrum prices with ambitious service parameters, to ensure full use of spectrum and encourage investments by the telecom operators for wider coverage and better services. By making idle spectrum available, the government can more than compensate for reduction in prices and still meet its revenue target.
Digital economy might be the only salvation for this country of 200+ million with a youth bulge. And making additional spectrum available at the right prices is fundamental to expanding and upgrading mobile broadband services, promoting digital entrepreneurship and unlocking the digital future of the country.