The Ministry of IT & Telecom Pakistan has released its Policy Directive for IMT Spectrum Auction. This is a significant document that lays down the frequencies to be auctioned and the the associated conditions.
The auction is technology-neutral, supporting both existing (4G) and upcoming (5G) technologies.
It is open to both new and existing Cellular Mobile Operators.
Here are the details:
1. Spectrum Bands and Pricing
The government has made spectrum available across six distinct bands. The base prices are denominated in USD but payable in PKR.
| Frequency Band | Spectrum Type | Quantity Available | Base Price (Per MHz) |
|---|---|---|---|
| 700 MHz | Paired | 15 MHz | USD 6.5 million |
| 1800 MHz | Paired | 3.6 MHz | USD 14 million |
| 2100 MHz | Paired | 20 MHz | USD 14 million |
| 2300 MHz | Unpaired | 50 MHz | USD 1 million |
| 2600 MHz | Unpaired | 190 MHz | USD 1.25 million |
| 3500 MHz | Unpaired | 280 MHz | USD 0.65 million |
2. Auction Mechanics and Rules
- Spectrum Caps:
- Overall Cap: An operator cannot hold more than 40% of the total spectrum available post-auction.
- Low-Band Cap: A limit of 55 MHz applies to aggregate holdings in the 700 MHz, 850 MHz, and 900 MHz bands.
- Specific Band Caps: 140 MHz limit in the 2600 MHz band and 200 MHz limit in the 3500 MHz band.
- Rationalization: Post-auction, operators must comply with a rationalization plan to ensure contiguous holdings in the 1800 MHz and 2100 MHz bands, optimizing network efficiency.
3. Financial Terms & Incentives
The directive introduces significant financial relief mechanisms to encourage participation:
- Currency Conversion: The USD fees will be converted to PKR using the National Bank of Pakistan (NBP) TT selling rate locked on the date preceding the auction.
- Moratorium Period: A one-year moratorium is granted from the license issuance date. No payments are due, and no markup accrues during this first year.
- Payment Options (Post-Moratorium):
- Option A (Upfront): 100% payment by the 1st anniversary of license issuance.
- Option B (Deferred): Minimum 50% payment by the 1st anniversary. The remaining 50% is paid in 5 equal annual installments starting from the 2nd anniversary.
- Markup: Deferred payments attract a markup of KIBOR + 3%.
4. Strategic Sector Reforms
The directive mandates several government-led initiatives to support the telecom ecosystem:
- 5G Facilitation: Enabling smartphone upgrades and allowing duty-free import of 5G equipment to accelerate adoption.
- Infrastructure: Leveraging Universal Service Fund (USF) infrastructure for fiber backhaul expansion.
- Energy Reform: A joint task force (MOIT&T, NEPRA, Power Division) will implement industrial power tariffs for the telecom sector to mitigate operational costs and outages.
- Future Spectrum: A review of the spectrum strategy to release over 1,000 MHz of additional low and mid-band spectrum before 2030.
Reading thru the the memorandum, here’s some high level first-takes:
Aggressive Push for 5G Deployment
The inclusion of the 3500 MHz band (often considered the "core" 5G band) at the lowest price point ($0.65M/MHz) signals a clear intent to lower the entry barrier for high-capacity 5G networks. Coupled with the directive for duty-free 5G equipment imports, the government is actively removing CAPEX hurdles for operators.
Cash Flow Relief for Operators
The one-year moratorium on payments is a critical policy shift. It allows operators to deploy the spectrum and potentially generate revenue (or at least secure the asset) for a full year before facing significant cash outflows. This addresses long-standing industry complaints regarding liquidity constraints in Pakistan's telecom sector.
Focus on Network Quality over Quantity
The requirement for spectrum rationalization in the 1800/2100 MHz bands 27 is technically significant. Fragmented spectrum reduces network efficiency; enforcing contiguity will improve data throughput and customer experience without requiring additional spectrum.
Exchange Rate Risk Mitigation (Partial)
While the price is set in USD, locking the exchange rate on the day preceding the auction provides certainty for the initial calculation. However, for deferred installments, the directive implies the fee is set in PKR in the license, which protects operators from future currency devaluation regarding the principal amount, though the KIBOR-linked markup 30 exposes them to domestic interest rate volatility.
Quotas to prevent spectrum monopoly
By imposing quotas at both the individidual band levels and at the overall level, the government is ensuring that no single operator can dominate the market. This is a crucial step specially after the recent merger which effectively leaves only 3 active telecom players in the market.