The Barometer of a Successful 3G Auction in Pakistan

The Barometer of a Successful 3G Auction in Pakistan

Auction and Post Auction scenario needs to be envisioned and shared with all the stake holders especially those who will be potential bidders for getting their feedback and more importantly their confidence

I am always asked this question at events and private meetings running a Cellular Development Forum s to why 3G Auction has not happened so far in Pakistan. A question that makes me really uncomfortable to explain specially to those who are not familiar with the dynamics and politics of country (Although it is equally difficult to explain to those who do understand the situation). The so called 3G Auction in Pakistan is an issue that has captured the eye of many specially the consumers in Pakistan for the past few years. The Supreme Court of Pakistan now has to intervene and order the Government to hire Chairman PTA and other members that is the relevant telecom regulatory body and complete the auction process within shortest possible time starting its judgment orders.

The important issue to consider here is that whether it is possible to complete a challenging task “Successfully” as this, in such a time frame. Previous Government tried a few times to auction the 3G spectrum but failed to do so and worst off during the last attempt the process was made controversial and quite sensitive for the MoITT & PTA to take any kind of initiative and therefore the Supreme Court had to intervene at the end of the day. The failure to do a 3G auction in the past is a subject that could lead us to an un-ending debate and write-ups but the important thing is to move forward taking lessons from the past and ensure a successful auction so that benefits of the technology could reach the common man. Therefore, the focus should be more on making the initiative towards 3G auctions going forward rather than investigating why the previous initiates failed.

The task requires now is to draw a comprehensive road map concentrating on the aspects of 3G auction and its significances in the future to ensure a “Successful 3G Auction” The barometer of gauging the success or otherwise of the success needs to be defined and therefore, we have made an attempt to highlight key elements spread over time that form the basis of such judgments or measurements:

[success] Pre-Auction Auction Process [/success] Pre-Auction: The two elements that stand out essentially in the pre-auction era are the setting the right objectives and environment for the auction that includes most importantly the choice to either focus/restrict the auction on incumbents or get a new player and the clarity of the entire process and involvement of the key stakeholders. [list style=”list3″ color=”green”]

• Incumbent versus New player
  One of the most important aspects of 3G auction in Pakistan will be to set a target (informally or formally) that is needed to be achieved whether it is to bring new player in the market or stay with the existing players. Pakistan currently is host to five GSM operators of which at least four of the telecom players are the world deepest pocketed, renowned and lucrative entities that anyone would like to see in the auction process i.e. Telenor, Etisalat, China Mobile and Vimpelcom (previously Orascom).

  The primary objective should be that the three frequency slots being offered currently should ideally be taken up by the incumbents as a natural progression of its services. It would be a huge loss to the credibility of the Government and more so for the operators in terms of its valuation if the spectrum slots being offered for 3G is not picked up by an existing incumbent mobile operator.

  A new mobile operator will be coming to an already very competitive environment that may further drive the industry towards more aggressive price war that we usually see in such a situation to gain market share, which is not a healthy development. If the expectation levels are not set right in terms of new players the 3G Auction could be dubbed as failure even if all the other objectives are achieved. It is important that while the focus should be on incumbents but the process should be open for the sake of transparency. There is however a fear within the government circles that cartelization may happen, if the sword of a new player is not hanging over the incumbents; will be resulting in lower revenues than expected. A reasonable benchmark or base price should be able to mitigate that impression or even the act itself.

• Clarity of the Entire Process & Involvement of stakeholders
  Process and post process scenario needs to be envisioned and shared with all the stake holders specially those who will be potential bidders for getting their feedback and most importantly their confidence. EOI and auction process need to be designed accordingly. Pre-bid conferences and meetings in addition to the potential bidders should be held with media, financial institutions, business chambers and the civil society so that a positive environment and clarity is ensured. This also acts as a good marketing exercise just like for a marriage there pre-functions such as “baree”, “mayun”, “mehendi” etc., before the marriage is solemnized.

[/list] [success]3G Auction Process:[/success] It is very important to chalk out the whole procedure and its requirement before actually starting the auction because any ambiguity in the process could drastically affect the whole process. A clearly laid down auction strategy will not only facilitate the auctioneer but will also help the interested parties to make informed decisions. The simpler the process, the easier for it is to explain and conduct for all. There is a school of thought that advocates use of complex methodologies and software as is done in some other countries. However, probably we do miss on the aspect that in some of the countries where these complex processes and software’s were used did not at all achieve the auction objectives.

Complex auctions necessary does not result in better results. A good way to understand and disseminate the information is to conduct a (or number of) mock auction well in advance that could provide room for further improvement.

The auction held by PTA primarily through its own staff in 2004 was quite simple and brought two new operators in the market, the fact it achieved better than expected results for multiple reasons. On the other hand, the last year 3G auction process crumbled at onset about the selection of consultants, which probably in a simple auction will not be a requirement, where the auction goes in the background and elements around the auction take center stage. The price to be paid is probably the single and most important gauge that most people especially within governments see as a barometer of success. A lot of people that I meet do quote Indian auction of over USD 16 Billion as a reference saying that if they could generate this amount then we deserve to atleast have over USD 02-03 Billion (being 1/8th the size).

Little, do they know about the negative implications of an overpriced spectrum? Both the Indian 2G and 3G auctions are a case study of “what not to do” for any government. It has unfortunately made a laughing stock of the India Telco policy and regulatory regimes. Not only this but it has devastated the otherwise burgeoning Indian Telecom industry and their consumers.

It may be noted that at a recent 3G Auction in Bangladesh in September 2013, 10 MHz of spectrum in the same band was able to fetch USD 210 Million. The expectation should be set accordingly.

[blockquote cite=””] Complex auctions necessary does not result in better results. The auction held by PTA primarily through its own staff in 2004 was quite simple and achieved better than expected results for multiple reasons
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The Pakistan 3G auction should be gauged by a right priced approach. The last telecom policy yet to get renewed provides for benchmarking the base price for 3G Spectrum from the last 2G licenses which comes to around USD 210-250 Million (depending on price or spectrum benchmarking) for the 10 Mhz slot-currently 3 slots are available for auction. This probably is the most acceptable benchmark price to start off. It is important to note that this is only a starting point; the final price could be quite different. A recent study conducted by PLUM Consulting has provided for a very wide range of USD 350 to USD 580 million per slot of 10 MHz depending on the environment around auction.

[blockquote cite=””] The Idian Auction being quoted is a classic case of “what not to do”
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The government has also for the 4th time in the federal budget earmarked USD 1.2 Billion (raising it from previous USD 750 mn) that comes to around USD 380 Mn (though no basis were provided for this forecast). The PLUM report does also mention a potential loss of around Pak Rs. 5 Bn per month to the economy as we further delay the process.

Giving the depressed state of the country’s economic situation, we must not target the higher slabs so that not only the auction but the long term objectives for the 3G Spectrum Auction could be realized that are explained in the post auction scenario section below i.e. roll-out, QOS, cost for the consumers and uptake of 3G Services.

Most experts that we spoke to who understand the Pakistan telecom industry and the current environment do put a right price of anything around USD 210-300 for a 10 MHz single slot, that may probably fall short of the government targets and expectations but provides enough room for the operators to pursue their long term objectives.

The right price could be achieved through making financial incentives such as allowing at least 25% if not 50% of the auction price to be spread across next 5 years as was done for the 2G licenses auction.

[success] Post Auction: [/success] While, the pre-auction and auction conduct are the immediate actions one see and can evaluate as a success or failure of the auction but it is always the post auction elements that are the most important to see if the auction has really provided dividends. Although, India raised USD 16 Billion dollars from the 3G auction last year the lack of potential bidders to get funding for network
drastically effected their rollout plans to the extent that even major cities in particular circles could not be covered resulting in poor coverage and degraded quality of service. Not only this but whatever coverage and QoS was available it was being offered
at a very high tariff to ensure that the ROI for the operators could be achieved. The entire fiasco resulted in poor uptake of mobile broadband services through 3G Auction.

[blockquote cite=””] The Government has a full term to go. If the auction does not achieve healthy growth of 3G due to shortsightedness of the policy makers to achieve short term goals, it will have to carry the baggage all the way besides ruining the industry and face consumer anger
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Recently, the tariff was slashed by almost half by the operators to entice customers that will definitely have a negative impact
on the operators EBITA margins preventing further investments by the shareholders.

No matter how well planned and transparent the auction is and how much revenue it generates, it will not be considered successful auction if the consumer uptake is not ensured. The only good that has happened from the 3G delay is that device cost of 3G terminals
including mobile phones has come within the range of a common man. The cost for a 3G mobile phone in the retail market has reached less than 35 USD (or less than Pak Rs. 3,700). If the data tariff based on the operator’s business model is reasonable we could see
the world most successful 3G launch in Pakistan that could be a role model for others.

The 3G auction process if done in the right manner, will not only benefit the operators and consumers but the Government of Pakistan will also be able to raise a reasonable amount of money which can be used to overcome the energy crisis and other socio economic problems being faced by the country.