Nothing moves a government like a court. The saga of telecom licenses took a legal turn earlier this month when operators took the federal government to court over delay in the renewal of their licenses expiring later this month. (For a background, read: “Telecom licenses: indecision hurts,” published May 8, 2019). Seeing its assured telecom billions under litigation, the government is now acting fast.
In this regard, a notification issued by the Ministry of IT & Telecom (MoIT) dated May 9, 2019 must have poured cold water on the aggrieved telcos’ hopes of a fair resolution. Just as they suspected, the federal government has chosen to renew the licenses “in accordance with per MHz price benchmarks from frequency spectrum auctions of 2016 and 2017” – and not as per the telcos’ demand to renew it at the original $291 million license fee in 2004.
In practical terms, each telco would have to cough up about $450 million to renew its license (more if 10% WHT is also levied on that fee). There is no change in license terms and conditions; the licenses would be technology neutral and valid for a period of 15 years. However, some technical parameters related to coverage and quality of service KPIs will be revised in line with the 2015 Telecom Policy.
The notification then goes on to deliver the knockout punches to the telcos’ hopes of litigating the renewal fees in their favour. The three operators (Jazz, Telenor and Zong) have been informed that the payment for license renewal is due on June 25, 2019. The hidden message is that quit litigating and pays up the amount, or brace for penalties, legal action and more uncertainty. They can pay either 100 percent upfront or 50 percent upfront and rest in five annual installments at interest rate of Libor plus 3 percent.
From the government’s perspective, the saga will conclude to its advantage. If the Islamabad High Court (IHC) lets the MoIT’s directive stand after its next hearing May 14, the treasury will receive at least $675 million (~Rs95 billion) in the last week of June – assuming that each operator decides to pay 50 percent upfront. This will also set up next spectrum auction with the current per MHZ price as the base.
And if the IHC suspended the MOIT directive, the government might feel relieved at the thought that NAB couldn’t possibly come after them as they pushed for a high renewal fee, not low. That will push the matter into further limbo, however, taking both parties into uncharted waters. From the government’s side, however, the die is cast. A lot is now riding on what and how the IHC adjudicates on this matter.
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