Need for an international 3G operator
The newly-selected consultants for Pakistans upcoming next-generation spectrum will soon get down to the business of auction design and spectrum pricing. Informed observers suggest that one of the critical success factors for this auction will be the level of participation of new telecom operators. The
ew operators will most likely be the established, multinational operators that want to do business in Pakistan.
The previous auction memorandum released by the PTA in January 2012 had allowed new operators to participate. But, it created an auction design wherein the new hopefuls would compete for spectrum alongside existing, established operators who have many years of local experience in Pakistan.
In fact, it seemed as if the then government wanted to concentrate the spectrum for next-generation technology among a few existing operators. It seemed to ignore the fact that a new entrant cannot have a similar value proposition for the market like incumbent operators.
As new auction modalities are hammered out, the policymakers need to ponder two questions. One, will Pakistans future market for mobile broadband (which is the 3G data networks primary service) be better off with a new entrant post-auction? And two, what kind of interest can Pakistans existing telecom fundamentals rouse from the new, multinational telecom operators to participate in this auction.
Telecom experts favour new entrants in this auction for two reasons. First, it will make the auction more competitive and help the government maximise the economic value of the given spectrum. And secondly, a new 3G (or 4G) international operator would bring its best expertise into Pakistan, thereby pushing new frontiers of value-added services and driving content-oriented competition.
The second question–about a new foreign operators interest–is tricky, and a critical one, given that Bangladesh failed to attract a new operator in its 3G auction held this September. There are two views on whether Pakistan will follow the same path.
The first one states that Pakistan is late to the 3G party. Multinational operators have no more appetite for new 3G licenses–a technology that has been around for a while now–as they have already invested in other developing countries.
The second view is that Pakistans ICT landscape is relatively more hi-tech than Bangladeshs, and, therefore, one cannot draw absolute parallels between the two countries telecom markets. It states if the auction process is conducted with competence and transparency, Pakistan can fetch much more than what Bangladesh did ($525 million; 37.5% of spectrum left unsold) with good new entrant participation.
One can be sure about which way the tide will flow. But the auctioneers must design an auction that does not discriminate against potential new entrants but rather incentivises them to participate in the auction. The new operator would demand a level-playing field. One of the ways to do that is to set aside 5MHz or 10MHz (out of the 30MHz available spectrum) for new entrants to bid on. That means existing telcos can only bid on the rest of the spectrum blocks and not this one.
To further incentivise a potential new operator, they can be offered to buy the spectrum of the now-defunct Instaphone (7.38MHz for 8 years) at a price per MHz per year that it bid to pay in the original spectrum auction. Only after its refusal, let the exiting operators bid for the Instaphone spectrum.
Auction design and pricing terms are going to determine the operators response to this game-changing telecom development in Pakistan. One hopes the policymakers realise the importance of a potential new entrant in the long-term interest of the local market.