Three telecom compnies are interested in acquiring a 7.38 MHz licence of 850 MHz


Cellular companies are not at ease with the government’s policy regarding new entrants in the country’s telecom sector as defined in the recently released Information Memorandum (IM), said an official belonging to a cellular company, requesting anonymity. The News clamied.

Three telecom operators, including Saudi Telecom, a Turkey-based mobile company and Mobily telecom (Etihad Etisalat consortium) are interested in acquiring a 7.38 MHz licence of 850 MHz spectrum belonging to defunct Instaphone – an auction that will allow a new entrant in the market.

According to the official, one of the major issues in the IM is that the new entrant policy is seen as too lenient. The new entrant is being given the freedom to use national roaming and infrastructure, said the official. “A new entrant can request infrastructure sharing under the clause 2.6 of licence,” he said, adding that incase the licensee cannot reach a commercial agreement then PTA will intervene and determine the cost and existing players will not be left with any choice but to assist and share the infrastructure.

“This is not fair on existing players, who have heavily invested in capital expenditure for development of the infrastructure,” the official added.

Further, the official said, the policy regarding commencement certificates is not clear in the IM. It does not state clearly when a new entrant can get a commencement certificate after which he can use national roaming.

“In this case, it is possible that a new entrant can put up just one tower or no tower at all and start GSM and national roaming services,” said the official, while stressing the need for clarification on the issue.

Another issue, the official said, is that existing players have been barred from the auction of the 850 MHz spectrum belonging to the defunct Instaphone. “If a new entrant wants to enter the market then it should compete with other players in the auction of the Instaphone licence,” he added.

He went on to add that if a new entrant is given the liberty to use existing infrastructure then he might not even have to spend much on infrastructure. “Thus the new entrant will not be spending in the CAPEX. If the government is trying to get more foreign investment through this auction of 850 MHz spectrum then it will only get the license fee at most,” he said.

The official said that such terms could cause an imbalance in the market dynamics since a player who has not invested much and needs less time to break even could start a price war and further push the average revenue per user down.

“It is our belief that 3G/4G are only viable if the spectrum auction base price is rational and new entrants are not allowed. There is no place for another player as the existing players are already doing business with very thin profit margins,” the official added.

At present, the ARPU per month of telecom companies in Pakistan is around $2.2, which is the second lowest in the region, after Bangladesh’s $1.97. At present, Philippines’ APRU is estimated at $3.44, Indonesia at $3.09, India at $2.56 and Sri Lanka at $2.35. In order to satisfy these requirements, he added, cell phone service providers have come up with different tariff packages to suit every pocket and thus increase their customer base.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins in Pakistan are also amongst the lowest for international operators. “Huge investments in the purchase of 3G/4G licence and capital expenditure coupled with already very low ARPUs are going to make 3G another painful experience for cellular companies,” said an official of a cellular company.

At present Pakistan’s teledensity has reached 76.9 percent, one of the highest in the region, with telecom sector revenue touching Rs440billion ($4.5billion). The cellular segment is the major contributor to this revenue with 134 million active SIMs, mobile market penetration at 74 percent and a market size of $3.2 billion.

The Pakistan Telecom Authority (PTA) published the much-awaited information memorandum (IM) for next generation spectrum auction on February 25. As per the plan, six licences (one 2G, three 3G and two 4G) for cumulative 58 MHz spectrum will be offered with a collective base price of $1.6 billion for 15 years, scheduled to be auctioned on April 7 this year.

According to the IM, in order to bid for a 4G licence, a bidder will have to first acquire a 3G license. PTA has invited applications to participate in bidding by March 25 this year along with 15 percent of the respective spectrum base price. After winning a licence, a cellular operator will have the option to pay 100 percent of the promised amount within 30 days or opt to pay only 50 percent upfront while paying the remaining amount in five equal annual installments carrying one year LIBOR plus 3 percent, said Tahir Saeed telecom analyst at Topline Research.

Saeed said the spectrum auction will not only improve APRUs of the industry but will also attract new customers. At present, the country’s mobile internet subscribers are almost 15.7million while smart phone penetration is only 15 percent. As per a third-party study published in the IM, smart phone penetration is expected to double in the next four years.

He agreed that the leniency provisions for new entrants are threatening exiting players. However, he added that the government had to provide some assurances to new entrants to fetch as much foreign direct investment as possible. Saeed said cellular penetration has reached its saturation stage and any new comer will definitely evaluate the market situation before investing. “To attract foreign investors, the government is left with no choice but to provide relaxation.”

Further, he said, the much-awaited licence auction will bode well for all stakeholders i.e. government, telecom operators and subscribers. At one side telecom subscribers would be able to experience better telecom services while telecom operators will get a chance to improve their subscriber base and ARPUs. It will also help in boosting mobile-based services by other industries, such as mobile banking. On the government side, it will immediately generate around $0.8 billion to the national kitty assuming all bidding is finalised at base price and telecom operators opt to pay only 50 percent.