According to official sources, mobile operators have conveyed to the 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 $ 210 million and as per Policy, any further assignment of spectrum (following a spectrum auction) would be fair and would 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 million for 2X10 MHz of 1800 is 40 per cent higher than the previous base price of $ 210 million for 2X10 MHz block in same band. Current base price is too high and no justification has been provided for such astronomical increase. There is always high risk of auction failures if base price is set too high.
A study by Plum Consulting (Reserve Prices in Spectrum Auctions: Why Size Matters - 2016) found that in the majority of recent auctions (51 per cent) over the past 10 years, the gap between the final price paid and the reserve price is negligible, suggesting the government rather than the market determined the outcome. 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 maximisation, 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. 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). Per MHz price remained the same ($39.5 per MHz) in the auction of 2014 and 2016.
However, PTA has responded that base price was fixed by Auction Supervisory Committee 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 price 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 March 27, 2017, containing the base price of $295 million for 10 MHz paired spectrum as a single block. The operators further stated that the Information Memorandum (IM) incorporates a timetable of events leading up to the auction including: concluding consultation comments on draft IM (19th April, 2017): finalisation of NGMSA rules (24th April, 2017); and submission of application with pre-bid deposit by (5th May, 2017). Investments of such significant magnitude as a matter of corporate governance 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 finalisation of IM and submission of bids, it is impractical to calling for all of the required board of director meetings etc. In view of above, a time span of at least 3-4 weeks should be provided to applicants/bidders after publication of the final IM before the application submission date. This would reset the bid submission date to at least 31st May, 2017. The NGMS Spectrum Auction may, therefore, be conducted after 15 more days, ie around 15th June, 2017 accordingly.
However, the PTA has 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 will be uploaded before 30th June, 2017 on PTA's website, remaining in time limits as mandated by policy directive.
Copyright Business Recorder, 2017