In a recent presentation, the National Economic Research Associates Inc. (NERA), an international consultancy firm from the United States, shared valuable insights on Pakistan upcoming 5G auction. NERA supported the telecom operators’ demands for more reasonable spectrum prices, extended payment terms, and the adoption of rupee-based pricing. According to NERA, these factors are crucial to ensuring a successful 5G auction in Pakistan. Let’s break down NERA key points and recommendations.
Challenges Facing Pakistan Telecom Industry
NERA highlighted several challenges in Pakistan telecom industry, which are impacting the sector’s ability to access spectrum efficiently. These challenges include:
- Auction Delays: Spectrum auctions in Pakistan have been delayed, hindering the growth of the telecom sector.
- High Base Prices: The reserve prices for spectrum have been set too high, making it difficult for telecom operators to afford the necessary frequencies for expansion.
- Unfavorable Commercial Terms: In previous auctions, telecom operators faced difficult terms, such as being forced to buy less desirable spectrum before qualifying for more valuable frequencies.
- Unused Spectrum: Some spectrum was reserved for new entrants who never came to the market, leaving a significant amount of spectrum unsold.
- Dollar-Pegged Prices: Spectrum prices are pegged to the US dollar. With the depreciation of the Pakistani rupee, the cost of spectrum has risen sharply, making it more expensive for telecom operators to acquire the frequencies they need.
- Weak Mobile Sector: Limited demand for mobile services and low willingness to pay have further discouraged investments in the telecom sector.
These issues have contributed to Pakistan low ranking in terms of spectrum allocation. According to the GSMA’s 2023 Mobile Connectivity Index, Pakistan ranks the lowest in South Asia for spectrum availability.
Impact of High Spectrum Prices on Competition
One of the critical points made by NERA was the negative impact of high spectrum prices on competition. If the cost of spectrum remains too high, fewer telecom operators will be able to afford it. This will reduce competition, which could lead to several negative outcomes:
- Lower Innovation: With fewer players in the market, innovation in mobile services is likely to decrease.
- Higher Prices: Reduced competition may lead to higher prices for consumers.
- Poor Consumer Outcomes: In the long term, this lack of competition could harm consumers through lower-quality services and fewer choices.
NERA emphasized that while high spectrum prices may bring short-term revenue to the government, they could hurt the telecom sector’s growth in the long run. By reducing spectrum prices, Pakistan could create a more competitive and innovative telecom market, which would ultimately benefit the economy and lead to higher government revenues in the future.
The Importance of Fiber Optic Backhaul for 5G
Another key recommendation from NERA was the need for Pakistan to invest in fiber optic backhaul networks. Currently, most of Pakistan telecom towers use microwave backhaul, which has limited capacity and reliability. NERA recommended that Pakistan shift to fiber optic cables for both 4G and 5G networks, as these offer superior performance.
The report noted that around 85% of telecom towers in Pakistan use microwave backhaul, while only 15% use fiber optics. This needs to change to ensure the country’s telecom infrastructure is ready for 5G.
Promoting Smartphone Upgrades for 5G
For 5G to be successful, it’s crucial that people in Pakistan upgrade to 5G-capable smartphones. Although smartphone usage is increasing, only 1% of mobile phones in Pakistan networks are 5G-capable, with higher adoption rates in urban areas. NERA recommended that the government support the adoption of 4G and 5G smartphones by reducing the high prices of these devices, which are partly caused by inflation and taxes on imported goods.
According to the Pakistan Telecommunication Authority (PTA), by the end of 2023, 62% of Pakistan population owned smartphones. However, the majority of these devices are still not capable of supporting 5G networks. Encouraging the use of 5G smartphones is essential for maximizing the benefits of 5G technology.
Government Role in Supporting Telecom Reforms
The Pakistani government has made some positive steps to help the telecom sector. In November 2023, the federal government approved a Telecom Infrastructure Sharing Framework, allowing telecom operators to share both active and passive infrastructure. This will help reduce costs and improve the affordability of services. NERA emphasized that such sharing should be promoted for long-term profitability and affordable tariffs.
Additionally, NERA recommended that the government provide extended payment terms for telecom operators, similar to practices in other countries like Vietnam and Indonesia. This will help telecom companies manage the significant investments required to expand their networks and systems.
Reserve Prices for Spectrum: NERA Recommendations
When it comes to the reserve prices for the upcoming 5G spectrum auction, NERA suggested that these prices should be more reasonable and aligned with the overall quantum of spectrum needed for modern 4G and 5G networks. In countries like Indonesia and Bangladesh, the reserve prices are set at levels that support the development of these networks without burdening telecom operators.
NERA also recommended shifting to rupee-based prices for spectrum. This would help reduce the risks associated with currency fluctuations, as the US dollar-PKR exchange rate has significantly impacted the cost of spectrum in the past.
The Importance of Market Certainty
Finally, NERA stressed the importance of market certainty. The government needs to make quick decisions regarding the number of telecom operators (CMOs) in the market. Currently, there is uncertainty about potential mergers and acquisitions in the telecom sector. Resolving these issues quickly will help ensure a smooth and successful 5G auction.
Summary
In conclusion, Pakistan 5G auction holds immense potential for the country’s telecom sector, but several factors need to be addressed to ensure its success. NERA recommendations, such as lowering spectrum prices, offering extended payment terms, investing in fiber optic backhaul, and promoting smartphone upgrades, will help create a more competitive and innovative telecom market. By adopting these reforms, Pakistan can pave the way for a successful 5G rollout, benefiting both consumers and the economy in the long run.
Key Recommendations for 5G Auction Success
| Recommendation | Details |
|---|---|
| Lower Spectrum Prices | Reduce high reserve prices to encourage more operators and foster competition. |
| Extended Payment Terms | Allow telecom operators to pay for spectrum over a longer period to ease financial burden. |
| Fiber Optic Backhaul | Shift from microwave to fiber optic backhaul for better 4G/5G network performance. |
| Promote 5G Smartphone Adoption | Lower the prices of smartphones to encourage consumers to upgrade to 5G-capable devices. |
| Rupee-Based Spectrum Prices | Change spectrum pricing from USD to PKR to reduce currency fluctuation risks. |
| Certainty in Market Structure | Resolve issues regarding telecom operator mergers and market participation quickly. |
| Infrastructure Sharing | Encourage telecom infrastructure sharing to reduce costs and improve service affordability. |
