3G/4G Mobile Spectrum Allocation Has Been Slow in Pakistan: Report

Mobile spectrum allocation and assignment in Pakistan has been slow and unable to match the evolution of technology, even when the full spectrum is available.

This was stated in the “market and regulatory assessment of mobile telecommunications in Pakistan” report jointly prepared by World Bank (WB) experts and the research team of the Competition Commission of Pakistan (CCP). This report was made under the project of “Strengthening Competition Policy Implementation in Pakistan”.

Spectrum allocation and assignment in Pakistan has been characterized by a piecemeal approach and has been unable to keep up with the rapid market evolution of the mobile sector in the country.

Spectrums for mobile communications have been typically assigned in a staggered way, which risks giving certain operators first-mover advantages and hinders the capacity of others to build 3G and 4G networks that are effectively competitive.

For instance, in the 2016/2017 financial year, PTA carried out another round of auction for the 10 MHz block of the unsold Next Generation Mobile Services (NGMS) spectrum (4G) which was won by Jazz for $295 million (plus 10% tax).

This auction was carried out just one year after the 850 MHz spectrum auction for 4G technology, launched in the financial year of 2015/2016 to address growing market demand, and which was won by Telenor for $395 million.

To counter this, the Telecommunications Policy 2015 determines that the MoIT, based on recommendations made by FAB and PTA, shall develop a rolling spectrum strategy (every year) with a program for the following three years.

The policy would also set timetables for spectrum assignments, putting in place safeguards that would prevent a few key players to monopolize the mobile spectrum, allowing for more efficient distribution.

Avoiding Monopoly

Since radio spectrum is an essential input for MNOs to compete in the mobile market, it is key that Pakistan ensures that radio spectrum is not hoarded by a few players in a way that limits market entry or expansion by other operators.

The limited availability of the spectrum as a scarce resource determines entry in last-mile mobile services. Entry cannot occur if governments or regulatory authorities do not issue spectrum licenses. Furthermore, in markets with dominant operators, competition can be harmed if spectrum caps or other mechanisms are not considered for future assignments to preserve or encourage competition in the market.

There is also a risk that market players could adopt foreclosure strategies by limiting the access of actual or potential competitors to the available spectrum.

When the available spectrum is insufficient to meet the demand from new entrants, the best international practice advises selecting new entrants through a competitive process. In both mobile and wireless markets, there are usually more market players interested than spectrum available for the service.

By requiring potential licensees to compete for the license, a scarce spectrum can be allocated to the operator that is best placed to maximize the benefit to customers and to succeed in a competitive market.

Spectrum Pricing

Spectrum fees and taxes on mobile firms should not disincentivize investment and favor efficiency in spectrum use. Spectrum pricing principles should incentivize efficient use of spectrum – including separating management fees (based on administrative costs) from usage fees (based on either market-determined or administratively-calculated economic value).

Spectrum pricing may also include the possibility of setting fees in favor of the new or smaller operators. Finally, including the possibility of spectrum trading and secondary markets in the regulatory framework can allow for efficient spectrum use over time.

The government only offered three licenses for 3G spectrum despite there being five operators in the market. The auction generated $1.1 billion but artificially limited the supply of spectrum to the market.

This contributed to eliminating one of the operators from the market and played a key role in Mobilink-Warid’s merger.

In mobile markets spectrum concentration may lead to market share concentration; in effect, data suggests that there could be a correlation between HHI for spectrum allocation and market shares (on subscribers) after the merger approved by CCP in July 2016.