A US-based consultancy, National Economic Research Associates (NERA), which has been enlisted to assist in Pakistan’s 5G spectrum auction, has expressed strong support for the demands of telecom operators. These include calls for an extended payment schedule, a more reasonable reserve price, and a shift to pricing in Pakistani rupees rather than US dollars for the upcoming auction.
NERA officials advised during the National Broadband Network Forum 2024 that the imposition of high spectrum prices could result in a decrease in the number of market participants, thereby reducing competition. They warned that this would likely impede innovation, increase consumer prices, and have a negative impact on the market. The consultancy firm underscored that, despite the initial auction proceeds being reduced, the reduction in spectrum prices could lead to an increase in government revenues over time.
According to NERA’s Managing Director, Pakistan is currently one of the most spectrum-constrained mobile markets globally. According to the 2023 GSMA Mobile Connectivity Index, the country is least allocated with spectrum in South Asia because of several reasons.
Such factors include delayed spectrum auctions, high base prices that are beyond reasonable debt to equity ratios, and unfavorable commercial terms. This devaluation of the Pakistani rupee has also contributed to the sharp rise in the cost of spectrum for local telecom operators, with the exchange rate moving from Rs163 to Rs278 per US dollar since the last auction in 2021.
Additionally, NERA’s officials emphasized that Pakistan’s telecom sector is confronted with obstacles because of a lack of investment and a limited demand for mobile services, which further impedes the industry’s growth potential. They emphasized that the government must balance the long-term economic benefits of a robust telecommunications environment and the short-term revenue generated by high spectrum pricing.
The consultancy firm also identified critical infrastructure issues, suggesting that Pakistan’s telecom operators should be encouraged to invest in fiber-optic backhaul networks rather than relying on less efficient microwave technology. NERA is a proponent of policies that would increase the appeal of fiber-optic networks, particularly considering their superior reliability and capacity, as 85% of mobile towers continue to utilize microwave backhaul.
Another major challenge discussed was the slow adoption of 4G/5G-capable smartphones. While smartphone ownership in Pakistan has risen, with 62% of the population owning smartphones by the end of 2023, only a small percentage are 5G-capable. NERA attributed the slow uptake to high device prices, driven by inflation and import taxes, and urged the government to promote greater adoption to help unlock the potential of 5G networks.
Pakistani government in November 2023 put in place policy regime to enable sharing of infrastructure by telecom companies and NERA supports this as it is positive for long-term operating and balance sheet profit, as well as drives tariff sustainability. The consultancy also suggested that international benchmark for reserve price of spectrum needed to be made according to modern 4G & 5G networks like Indonesia and Bangladesh.
Besides this, NERA recommended that instead of dollar, the prices of spectrum should be set in rupee, which would make it easier for Indian telecom companies to mitigate the exchange rate risk they face while operating in dollar. The firm also suggested the adoption of open-book accounting to pay better terms as seen in Vietnam Indonesia and Bangladesh as this will reduce the pressure of upgrading network from the firm operators.
The significance of releasing additional 4G spectrum, including the full 190 MHz of the 2600 MHz band, to guarantee a successful auction was underscored by NERA in anticipation of the 2025 spectrum auction. The consultancy also suggested that the market structure, including the number of telecommunications operators, be resolved in advance to ensure the necessary certainty for a competitive and sustainable 5G implementation in Pakistan.
