NERA backs telecom operators’ demands for Pakistan’s 5G spectrum auction

ISLAMABAD: The National Economic Research Associates Inc. (NERA), a US-based consultancy firm engaged for the spectrum auction in Pakistan, has endorsed several demands from telecom operators, including extending payment terms, adjusting the reserve price to reasonable levels, and transitioning to a rupee-based pricing model for a successful 5G auction, reported Business Recorder.

NERA cautioned that excessively high spectrum prices could lead to a reduction in the number of market participants, diminishing competition and potentially causing lower innovation, higher prices, and other adverse effects for consumers.

The Managing Director of NERA emphasised that from a long-term perspective, lower spectrum prices might ultimately generate higher government revenues, rather than diminishing them. The statement was made during a presentation at the National Broadband Network Forum 2024.

According to NERA, Pakistan is currently one of the most ‘spectrum-starved’ mobile markets globally. The GSMA’s Mobile Connectivity Index Report 2023 ranks Pakistan as the lowest in the South Asia region in terms of spectrum allocation.

The MD of NERA identified several reasons for Pakistan’s limited IMT spectrum assignments, including delays in spectrum auctions, high base prices for spectrum set too high, unfavourable commercial terms, unused reserved spectrum due to a new entrant who did not materialise leaving 30 percent unsold, prices pegged to the US dollar leading to dramatically increased costs after the devaluation of the Pakistani rupee and a weak mobile sector characterized by limited demand and low willingness to pay,

They highlighted the urgent need for sector reform, particularly in fiber optics. Currently, Pakistan’s four telecom operators own about 55,000 mobile towers, with only 15% utilizing fiber backhaul for their base stations.

There’s a pressing need to create incentives for investment in fiber optic backhaul networks, as they provide superior capacity and reliability essential for 4G and 5G services.

Additionally, the need for facilitating smartphone upgrades was underscored, as 62% of Pakistan’s population owned smartphones by the end of 2023, yet only 1% of phones on operator networks were 5G capable. The high cost of smartphones, influenced by inflation and import taxes, hinders broader adoption and economic utilization of digital services.

NERA advocates adjusting reserve prices for spectrum to better align with the quantum needed for modern 4G and 5G networks, drawing comparisons to countries like Indonesia and Bangladesh. The firm firmly supports transitioning to rupee-based pricing to better synchronize revenues and costs within the telecommunications sector given the challenges associated with USD-PKR exchange rate risks.

For the success of the 2025 spectrum auction, which aims to signal to the global community that Pakistan is open for digital business, NERA enumerated several critical factors: extending payment terms, similar to practices in Vietnam, Indonesia, and Bangladesh; additional incentives for the 3.5 GHz band (exclusively for 5G); and increasing the availability of 4G spectrum by releasing the full 190 MHz at 2600 MHz, particularly the 140 MHz subject to litigation. They indicated that clarity regarding the market structure and decisions about the number of operators (especially following proposed mergers) should be resolved swiftly.