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NERA Supports Telecom Operators for Successful 5G Auction in Pakistan

  • December 26, 2024
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National Economic Research Associates Inc. (NERA), a U.S.-based consultancy firm, has supported telecom operators’ calls for extended payment terms, reasonable reserve prices, and a shift to rupee-based pricing for the upcoming 5G spectrum auction in Pakistan. NERA’s insights, presented at the National Broadband Network Forum 2024, highlighted the risks of setting high spectrum prices, which could reduce market competition, hinder innovation, and ultimately lead to higher consumer prices.

According to NERA’s Managing Director, lowering spectrum prices would likely generate higher government revenues in the long run. “Even from a net revenue perspective, it is highly probable that lower spectrum prices will lead to long-term higher government revenues,” he explained.

Pakistan’s mobile sector faces a severe shortage of spectrum, ranking the lowest in South Asia for spectrum allocation, according to the GSMA’s 2023 mobile connectivity index. NERA attributes this shortage to several factors, including delayed spectrum auctions, high base prices, and unfavorable auction conditions. For example, in the 2014 auction, telecom operators had to purchase less desirable 2100 MHz spectrum before qualifying for the more sought-after 1800 MHz spectrum.

The dollar-pegged pricing model for spectrum, introduced in the 2021 auction, has further exacerbated the issue. With the Pakistani rupee’s significant depreciation, spectrum prices have risen by over 70%, increasing operational costs for telecom operators.

NERA emphasized that high spectrum prices not only reduce competition but also inhibit the growth of 4G and 5G networks, affecting the quality of services and innovation. The firm stressed the importance of balancing short-term revenue gains with long-term economic benefits. Lower spectrum prices would foster a competitive telecom market and generate sustained revenue for the government.

NERA also recommended aligning Pakistan’s spectrum prices with international standards, similar to countries like Indonesia and Bangladesh, where reserve prices reflect the amount of spectrum needed for modern 4G and 5G networks. Additionally, the firm suggested moving to rupee-based pricing to reduce risks from currency fluctuations, which would better align the telecom sector’s revenue with its operational costs.

The telecom industry also faces infrastructure challenges. Pakistan’s four telecom operators manage around 55,000 mobile towers, with the majority relying on microwave backhaul. Only about 15% of base stations use fiber optic backhaul, which is essential for the efficient operation of 4G and 5G services due to its higher capacity and reliability. NERA called for incentives to encourage telecom operators to invest in fiber optic networks, with government support in areas like right-of-way and regulatory conditions.

Another obstacle is the limited adoption of 4G and 5G-capable smartphones. Despite an increase in smartphone usage, only 1% of phones on telecom networks are 5G-capable, although urban areas have higher adoption rates. NERA recommended policies to reduce smartphone costs, which are inflated by inflation and import taxes, to encourage wider adoption of 4G and 5G devices.

The firm also urged the government to expedite the release of additional spectrum, particularly the full 190 MHz at 2600 MHz, which is crucial for both 4G and 5G services. NERA advised that decisions about the number of telecom operators in the market should be made promptly to ensure certainty for industry players.

NERA also recommended promoting infrastructure sharing among telecom operators to improve profitability and maintain affordable tariffs. The federal government approved a framework for infrastructure sharing in November 2023, allowing telecom operators to share both active and passive infrastructure. NERA believes this will be key to the sector’s long-term success.

If adopted, NERA’s recommendations could significantly improve Pakistan’s telecom sector, ensuring a successful 5G auction in 2025 and strengthening the country’s position in the global digital economy. The firm’s insights underline the importance of finding a balance between short-term financial returns for the government and long-term growth and sustainability for the telecommunications industry.

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