Transparent & efficient bidding for mobile licenses by PTA

Apr 12 - 18, 2004

The announcement of Deregulation of Telecom Sector Policy in July 2003 and subsequent announcement of Mobile Cellular Phone Policy on January 2004 has opened the doors of unparallel development opportunities in the telecom sector in Pakistan.

The official monopoly of Pakistan Telecom Company Limited. (PTCL), the national telecom giant over fixed telephony, had already ended on Dec, 31, 2002, and the announcement of deregulation policy in July 2003 had paved the way for new entrants to come here and explore the potential of the telecom market in Pakistan.

Later on, in January 2004, first ever Mobile Cellular Phone Policy was announced to lay. The foundations for granting additional licenses and enhancing competition in the mobile phone industry in Pakistan. As per announced policy, two nationwide licenses through integrated open bidding will be awarded for 15 years tenure. The policy review period is 5 years. The new entrants would submit a performance bond worth $ 30 million to ensure compliance with roll out obligations, which include coverage of 70 percent Tehsil HQs in 4 years (at last 10% in each province).

A uniform framework, for existing and new cellular licenses would be offered including license terms and conditions, spectrum allocation, pricing, roll out obligations, quality of service standard, and performance benchmarks.

The Pakistan Telecom Authority (PTA) has constantly been in touch with contacted the world-class consultants like Mc Carthy and prominent local and foreign telecom experts and operators, to find out the parameters for the formulation of de-regulation of telecom sector and its opening up for private entrepreneurs. These brain-storming and deliberations resulted in Deregulation of Telecom Sector Policy (July 2003) and Cellular Phone Policy (January 2004).

Implementation of cell phone policy would provide opportunity to consumers to provide a broad base for select of service provider of their own choice. It would also generate job potentials for technical and non-technical manpower. The new entrants would also trigger healthy competition that would not only bring prices down but also ensure betterment in the quality of services provided to the end users by the operator.

Conceptually the deregulation, which leads towards competition, is the most efficient mean to deliver new and better services at lower prices to the ultimate user.

But in case of Pakistan, it could not happen in letter and spirit. Insta & Paktel, with communication network based on AMS technology lagged behind Mobilink & Ufone, operating at GSM technology. Ufone, subsidiary of the PTCL, could not expand its infrastructure and operate in corporate fashion due to bureaucratic procedures involved at every step. So Mobilink virtually enjoyed monopoly in the market. This defacto monopoly of Mobilink has been instrumental in blocking the formation of competitive environment in the sector.

The PTA, as sole regulator is striving hard for the realization of the dream of creating fair and free telecom sector in Pakistan. While elaborating the salient features of the new cellular phone policy, Chairman PTA, Maj Gen (R) Shahzada Alam Malik was quite optimistic about the role of regulator in accelerating the pace of growth of the sector.

It is generally agreed that grant of two new licenses would enhance the results of efforts, made to liberalize telecom sector in Pakistan. In the policy, the cell phone sector has been recognized as industry. It would mean, entitling all cell phone companies to all the benefits, the new policy allows.

Out of 33 national and international companies who have submitted their expressions of interest to the authority, only those would be allowed to participate in the bidding (on April 14, 2004 for the grant of 2 more cellular mobile phone licenses) who would have submitted an amount of $ 10 million till 12th of April with the PTA as earnest money. The authority has made every possible rather apparently impossible effort to make the bidding process categorically fair and transparent. Chairman of the authority has unequivocally asserted that arrangements have been made to make the whole process acceptable and appreciatable by all including all stakeholders, bidders and local & foreign observers and media people.

As per arrangements made by the authority, the bidding process would consist of two rounds. In the first round, the interested parties would deposit their sealed bids in a transparent box, which would be opened in the presence of the audience. Top 50% bidders would be eligible to participate in the next round of bidding. Among the remaining 50 percent, parties offering bids equal to 80 percent of the highest sealed bid, would also be allowed to participate in the second round of bidding. The second round of bidding would be held through an open outcry and the party offering the highest bid would be issued license to operate in the country.

The party at the second position, would also be given the second license provided it was ready to pay the sum equal to the first highest bidder. The interested parties have been informed in black & white about the whole bidding procedure and no change would be effected in the prescribed criteria.

Bidding would be held between 10 a.m and 11 a.m at a local hotel in Islamabad, and the new companies are expected to be operative fully by the end of this year.

The licenses of Insta and Paktel are expiring in 2005, while the term of Mobilink license would end by 2007. The licenses of the existing companies would be renewed on the payment of fees equal to the new license payments of new mobile phone companies.

Today Pakistan telecom sector stands at a point where its gross revenue is almost Rs. 104 billion in just one year (2002-2003). Currently 6 telecom companies are listed on stock exchanges and these companies constitute 70% of gross revenue of the whole telecom sector.

Pakistan has come a long way in development of telecom sector. Over the years every telecom service has expanded not only in urban areas but also in far-flung under developed areas. In case of basic telephony, there are today 2.7 telephone lines available for every 100 inhabitants. This teledensity was only 1.8 in 1996. Main reason for increased teledensity can largely be attributed to the reduction in monthly line rent on each connection beside other factors. The line rent stand reduced to Rs.200.

There are currently 4 mobile operators in the market with a subscriber base of 3 million as estimated in December 2003. However the competition is partial where as there remain huge unmet demands in the market, which can be justified with increase of 1 million subscribers in only 6 months. Pakistan mobile sector was not growing at expected pace till the year 2001 when PTA introduced Calling Party Pay (CPP) regime and Ufone joined the market. Mobilink is the main shareholder in mobile market with almost 60% share and rest of 40% divided among the 3 operators.

Sector has shown phenomenal growth over the years, however, we are still far behind in term of cellular penetration in comparison to our similar economies.

Despite the fact that cellular industry in Pakistan is more than 13 years old but the subscriber still miss realistic competition. There is a huge pending demand but due to relatively low quality of service potential customers wait eagerly for their operator of choice, of course with better service for mobile before being able to get a connection.

Several cities and towns are without any coverage or the standard of service and signal strength is below the optimum mark. It is hoped that the said gap will be filled by the entry of two new operators.