The State Bank of Pakistan has estimated that $630 million could be generated from the auction for 3G licences to support external and fiscal deficit. Meanwhile, however it has also suggested some changes in the Information Memorandum issued by the Pakistan Telecommunication Authority (PTA) for the auction.
Sources told Business Recorder on Monday the SBP sees a positive outlook of 3G auctions as in the absence of external inflows, the revenues to be generated from the auction are highly awaited for financing of external and fiscal deficits. Earlier, the federal government planned to conduct auction for 3G licences during FY12 and PTA also announced the auction date, however it was not carried out because of some domestic issues.
During January 2012, PTA announced that the auction for 3G mobile spectrum to be held on March 29, 2012. However, the auction was again postponed due to unknown reasons and now the government has decided to sell 3G licenses during this fiscal year 2013.
Sources said with this delay, PTA now has enough time to improve the terms and conditions of the auction to create more interest and to optimise the future stream of revenues for government. The SBP's findings on the 3G licenses study has revealed that the auction of 3G mobile spectrum has the potential of generating significant revenues for the government and at the base price of $210 million per license, the minimum amount that could be generated from the auction is estimated at $630 million.
According to SBP, discussions with cellular companies and financial sector suggest that most of the companies have made their business plans and have lined up funds for the rollout of 3G mobile services. The foreign ownerships of the domestic mobile companies also reflect the ability of some of the companies to arrange funds for investing in 3G technology from their parent companies.
However, the SBP said that, the provision in the Information Memorandum issued by PTA for auction of 3G licences, 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," the SBP suggested.
The SBP also believed that in view of the low mobile internet demand in the country, the success of 3G depends upon a competitive environment in the industry and in the absence of competition, firms may not have the incentive to offer services at affordable prices.
"When, the growth in cellular revenues could be declining due to intense price war amongst cellular 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," SBP said.
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 revenue, the auction will support the cellular companies to retrieve their existing customers as there is possibility of losing high valued customers by cellular companies, who opt out of 3G. Similarly, successful companies are likely to be 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.
New technology 3G is technically more efficient, hence cellular companies will be able to provide services to existing subscribers and increase demand for such services. 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, it added.
The SBP has also suggested that 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 SBP said. The State Bank has also mentioned that incentive of cellular companies' revenues is likely to be gradual as firms are currently focusing on retaining their subscriber base and improving the quality of services.