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The 3G and 4G auction


Since Finance Minister Ishaq Dar’s declared intention to raise Pakistan’s foreign exchange reserves, expected revenue from a 3G and 4G telecom licence auction was part of the government’s calculations. Initially the government expected as much as $ 1.5 billion from the auction. However, recently that amount inflated to $ 2 billion and numbers as high as $ 5 billion were quoted. Simple arithmetic shows that these numbers do not add up; if three licences worth (at base) $ 295 million and three worth $ 210 million were auctioned, the total amount raised would still be $ 1.5 billion. Moreover, even achieving that lower figure required auctioning all 3G and 4G spectrums as well as an available 2G spectrum bandwidth in the first round of bidding. Anyone could have told the finance minister that selling six spectrum blocks to five telecom operators favoured the buyers. While spectrum bandwidth is a limited resource, each company also has to take into account its subscriber base and the rate of conversion to 3G it expects, since Pakistan’s smart-phone penetration is still only 15 percent of total cellular use. One company’s withdrawal from the bidding did not surprise industry professionals, since it reportedly faces financial difficulties and was even being considered for sale earlier this year. Hence, effectively four operators were in the running. Hopes of foreign players driving up the bidding were always speculative given their non-participation in the market so far. Reports say that two foreign companies that were interested do not maintain existing 2G networks and also wanted monopoly rights to 3G access that would have undermined existing operators. Realistically then, the government should have expected around $ 1.2 billion from the initial auction; still a respectable number. It has now ended up with dashed hopes because of an overly optimistic Ministry of Information Technology (IT) assessment. 
The importance of 3G and 4G technology to the economy should not be underrated. Telecommunications infrastructure is today a vital part of any nation’s development needs. Pakistan has had 3G-capable networks since 2008 and it was only licensing concerns that left operators unable to provide the technology to consumers. Both 3G and 4G technology rely on fibre optic cables that improve data transfer and connectivity between users, which is essential for research institutions, hospitals, and universities looking to share information. Converting copper lines to fibre optic cable is a priority for the Universal Services Fund (USF) to improve internet access, particularly in remote parts of the country. The internet itself is a vital educational and informational tool, whose full power has not yet been realised in Pakistan because of data transfer constraints and limited accessibility. As the basis for a knowledge economy, cutting edge data transfer mechanisms are vital if Pakistan is to realise its potential as a financial and information hub. Moving to modern fibre networks will only be possible once telecom operators feel there is enough demand for their services to make it feasible for them to undertake the expenditure. Hence growth in 3G demand will drive data development. Pakistan is also developing indigenous smart-phone technology and a thriving sub-market for refurbished smart-phones that drive small businesses and entrepreneurship.
The initial auction itself should not be viewed as a failure but a slight embarrassment for the government, which should have known better than to make its recent claims. The Supreme Court on Wednesday ordered the final auction go ahead on April 23, and it may yet prove to be more profitable once bidding ends. One cannot fault the finance minister, who relied on assessments from the IT Ministry that apparently painted a rosier picture than was true. What the ministry had to gain from this rather than presenting realistic expectations is anyone’s guess. This episode shows that in certain administrative fields, responsibility must be borne by industry professionals with technical experience and in depth industry knowledge, who can accurately assess market sentiments. In the meantime, Pakistan’s 132 million cell-phone subscribers can look forward to improved data services on their phones and broader internet access.  *

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Aaj Kal