Foreign Consultant Backs Telcos’ Demands for Successful 5G Auction Next Year

The National Economic Research Associates Inc (NERA) – a United States-based international consultancy firm hired for the spectrum auction, backed telecom operators’ demands, including extended payment terms, and reasonable reserve prices as well as moving to rupee-based prices for a successful 5G auction in the country. NERA warned that high spectrum prices will result in fewer players and lower levels of competition, potentially leading to lower levels of innovation, high prices, and other poor outcomes for consumers. It is critical to emphasize that even from the perspective of net flows to government revenue, it is highly likely that lower spectrum prices will lead to long-term higher government revenues, not lower ones”, said MD NERA in a presentation given during the National Broadband Network Forum 2024. The NERA official said that Pakistan is presently one of the most spectrum-starved mobile sectors in the world. According to GSMA’s mobile connectivity index report 2023, Pakistan ranks lowest in the South Asia region for spectrum allocation. Factors to Pakistan’s low quantum of IMT spectrum assignments, according to MD NERA are; Regarding the relationship between spectrum and government revenues, the NERA official stated that all governments face a trade-off between (1) the short-term payoff to government revenues from high spectrum prices and (2) the long-term economic and social benefits that come with a high-performing telecommunication sector enabled by sustainable spectrum prices. High spectrum prices will result in fewer players, and levels of competition will decline, potentially leading to lower levels of innovation, high prices, and other poor outcomes for consumers. It is critical to emphasize that even from the perspective of net flows to government revenue, it is highly likely that lower spectrum prices will lead to long-term higher government revenues, not lower ones, he added. Regarding the initial view on the key sector reforms, the need to facilitate fabrication; fiber optic backhaul, he said Pakistan’s four telecom operators have a total of 55,000 mobile towers, and approximately 85 percent use microwave backhaul. Approximately 15 percent of base station sites in Pakistan are operating with a fiber backhaul. Ideally for 4G and 5G such backhaul networks should be fiber optic cable networks given their superior capacity and reliability compared to microwaves backhaul networks. Creating incentives for players to invest in such fibers matched by the improved ability to deploy optical fibers by the government (e.g. ROW, model terms and conditions). Further, he stressed the need to facilitate smartphone upgrades; adoption of 4G/5G capable phones. Smartphone usage in Pakistan has been steadily increasing. According to the PTA by the end of 2023, 62 percent of Pakistan’s population owned smartphones, which includes devices operating on 3G, 4G and 5G networks. But CMOs indicate that only one percent of phones on their networks are 5G capable, but higher in key urban areas, and new 5G phone purchases according to Huawei were 15 percent of the market in the past quarter. The price of smartphones is high in Pakistan. One factor is inflation while a second factor is the imported tax. In order to get the most economic value (e.g. access government and financial services etc. online) there is a need to accelerate smartphone adoption. In November 2023, the federal government approved the Telecom Infrastructure sharing framework developed by the PTA, which allows telecom operators to share both active and passive infrastructure in a fair and competitive way. There is a need for such sharing to be promoted for the longer-term sector profitability and tariff affordability. Optimal methods to address this as part of the spectrum auction are still being considered. NERA recommended that the reserve prices for spectrum need to rest reflecting the overall quantum of spectrum needed for modern 4G and 5G networks such as in countries like Indonesia, Bangladesh, etc. He recommended moving to rupee-based prices. He said the better match telecommunications sector revenues and costs given the inability to hedge USD-PKR forex risks. He outlined critical factors for the 2025 spectrum auction to be a success and established a millstone that tells the world that Pakistan is open to digital business. He recommended extended payment terms, saying given the substantial investment required in networks and systems there is a need for extended payment terms (e.g. like Vietnam, Indonesia, Bangladesh, etc) additional incentives may be required in relation to the 3.5 GHz band (which is 5G only) even with the growth in 5G FWA opportunity. He further said that having more 4G spectrum to offer to the market, the release of the full 190 MHz at 2600 MHz – including the 140 MHz subject to litigation is key to the success of the auction as CMOs are seeking mid-band capacity spectrum that can be used for 4G and 5G services to improve quality of services. Certainty as to market structure, he recommended that decision as to the number of CMOs (e.g. given the proposed merger) should be resolved as soon as possible.