According to the schedule announced by PTA, during January 2012, the auction for 3G mobile spectrum had to be held on March 29, 2012. However, the auction has been postponed and is not likely to be held during FY12.
In the absence of the sense of urgency to secure the receipts during the fiscal year, PTA now has enough time to improve the terms and conditions of the auction to solicit more interest and to optimize the future stream of revenues for the government. In this regard, the main findings of the analysis, concerning the rollout of 3G mobile services in Pakistan, are discussed in the following points:
- The auction of 3G mobile spectrum, has the potential of generating significant revenues for the government.55 At the base price of US$ 210 million, the minimum amount that could be generated from the auction is US$ 630 million.
- Growth in cellular revenues could be declining due to intense price war amongst cell companies. There is a need to break this trend by introducing value added services via 3G technology, in the form of high speed internet access and video streaming.
- Although demand for mobile internet – the key feature of 3G – is low in Pakistan and the revenue from internet usage contributes a small share in total cellular revenues, the 3G business case for firms has two other components:
(a) The possibility of losing high valued customers by cell companies, who opt out of 3G (b) Gaining market share from companies that are unsuccessful in the auctions. These factors together make a strong business case for 3G despite low internet demand at this stage.
- Cellular companies have already upgraded their infrastructure and the rollout of 3G will not require much additional investments, except for the payment of license fees.
- 3G is technically more efficient, hence cell companies will be able to provide services to existing subscribers and increase demand for such services (supply creates its own demand).
- In view of the low mobile internet demand in the country, the success of
3G depends upon a competitive environment in the industry. In the absence of competition, we believe firms will not have incentives to offer competitive services at affordable prices.
- Cheap 3G handsets and availability of mobile applications in Urdu is necessary for the pickup in demand for 3G services.
- The demographics of Pakistan’s population, with a large share of young adults hints at the possibility of strong demand for 3G services for infotainment purposes.
This, however, depends upon the pricing policies of the firms that introduce new applications, the quality of service, and the pace of marketing of 3G services. The stimulation of cellular revenues is likely to be gradual as firms are currently focusing on retaining their subscriber base and improving the quality of services.
In view of the low mobile internet demand in the country, the success of 3G depends upon a competitive environment in the industry. In the absence of competition, firms may not have the incentive to offer services at affordable prices. In this context, the provision in the Information Memorandum issued by PTA, allowing one firm to bid for two licenses (out of three that will be auctioned), appears to be against the spirit of competition in the industry.
In addition, to generate more and consistent stream of revenues from the auction, the payment for licenses may be staggered (after an initial payment of 50 percent of bid price), instead of the one-time upfront fee as mentioned in the information memorandum.
Sabina Khurram Jafri is a senior researcher and official of State Bank of Pakistan. She authors research article for publications of the central bank based on Economic and business situation of the country. The article originally appeared in the recently released quarterly report “The State of Pakistan Economy”.