How Pakistan Handled Spectrum: Lessons for Others?

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Until 1996, the Federal Government was policymaker, regulator, spectrum manager and telecom operator. The new telecom law of 1996, restricted the role of the Federal Government to that of issuing policy guidelines to the regulator; Pakistan Telecommunication Authority (PTA). Spectrum is managed by a specialized government body known as Frequency Allocation Board (FAB) independent of the PTA, which performs the other regulatory functions.

Pakistan introduced mobile cellular telephony early, in 1990. Although there was no clear spectrum management policy or roadmap available prior to 2004, the issuance of four mobile cellular licenses and the assignment of spectrum to those licensees were remarkably well thought out. There was clarity about the amount of spectrum needed for nationwide operations. All were given 2 x 10 MHz spectrum each irrespective of technology deployed) to meet their immediate and future needs.

The first two licenses were issued in 1990 and 1992 to Paktel (now Zong) and Instaphone. They deployed analog AMPS technology in the 800MHz band. The third license was issued in 1992 to Mobilink and the fourth to Ufone in 1998. Both Mobilink and Ufone used digital technology (GSM). Mobilink commenced service in 1994 and Ufone launched in 2001. All licenses were for a period of fifteen years.

Choice of technology was always with the operators and even after issuance of the mobile cellular license; they were allowed and facilitated to switch to new technologies. Instaphone after some time switched to the digital version of AMPS system and Paktel changed to EGSM in 2004.

Initially spectrum was not priced high and assigned without going through any market-based competitive process. The first three mobile operators paid nominal amounts for license and spectrum. However Ufone paid fifty million Pak Rupees as initial fee for getting its license and spectrum.

In 2003, when action was taken to issue two more mobile cellular licenses, the need for a proper spectrum allocation mechanism and roadmap arose. At that time only 2x5 MHz of the 900 GSM band was unassigned and it was expected that the clear preference of the new entrants would be GSM.

During consultation, it was realised that if new licensees are not to be disadvantaged against incumbents in their spectrum assignments, it would be desirable to offer them some 900 MHz channels as well as sme in the 1800 MHz GSM band. This initiated the re-farming of 900 MHz. The obvious choice was to claw back some of the already assigned spectrum from incumbents. Because of statutory protections, the only option was to win their consent for an amicable re-farming.

The 1800 MHz spectrum band is inherently more capital intensive, since the maximum achievable cell sizes are significantly smaller than possible with 900 MHz. Depending on demand density, the required number of cell sites may be 30 percent higher in urban areas, and considerably more in rural areas. However, as the demand density increases, the requirement for additional cell sites at 1800MHz falls. For this reason, 1800 MHz had significant attractions, particularly in urban environments, where high traffic capacity and maximum reuse is required.

In return for some of the 900MHz channels, incumbent operators were given: (1) certainty of 15 years renewal on expiry of their initial tenure; (2) additional rights to self-build regional backbone within each of the 14 telecom regions; and (3) assignment of additional frequencies in the 1800 MHz band in exchange for a lesser amount of spectrum in the 900 MHz band.

During the development and implementation of the Mobile Cellular Policy 2004, certain principles were adopted including:

Technology neutrality (in any given block of spectrum, licensee has the right to choose and deploy any technology);
All voice and data services permitted;
Encouraging efficient use of spectrum;
�Use it or lose it� spectrum policy;
Least disturbance for incumbent operators during re-farming of 900 MHz;
Size of spectrum blocks sufficient to support creation of commercially viable services;
Focus on both spectrum efficiency and economic efficiency;
Minimal regulatory fee, limited to the cost of regulation;
Spectrum and license tenure of 15 years;
Spectrum price determined through open and transparent auction;
Outcome of the auction was benchmark for license renewal; and
Assurance of no revision in policy for five years.

The auction design for two mobile cellular licenses was not ideal but a number of steps were taken to find the winner as quickly as possible instead of focusing on maximising the initial fee, including:

Incumbent licenses were not eligible to participate in the auction;
Auction was to continue without break (even lunch break was not allowed);
Flexible payment terms; and
License template with time-bound roll-out obligations, was made available in advance to ensure that participants knew the cost for provision of service.

As a result of the regulatory principles, predictability, transparency and clarity of the Mobile Cellular Policy 2004, Pakistan managed to attract foreign investors to participate in the auction. The winning price was USD 291 million for each license (Telenor and Warid were the winners), which was way beyond the expectations of the government and regulator but not high enough to cause any hurdle in the spending in roll-out and service provisioning.

Currently none of the operators are short of spectrum. In any case there is enough spectrum in the hands of FAB to meet any future demand from existing operators.

3G spectrum auction has been delayed considerably in Pakistan but because of the technology-neutrality principle in the spectrum allocation and service licenses, all existing mobile operators can provide 3G services in 900 MHz (typical minimum requirement is only 4.8 MHz for 3G in 900 MHz), without waiting for spectrum in 2.1 GHz.

Pakistan also allocated spectrum to the Local Loop licenses through auction in 450, 480, 1900 MHz and 3.4, 3.5, 3.6 GHz. A very clear demarcation was made between mobile and local loop licenses and was jealously guarded to check any damage to the market design. All Local Loop licenses contain obligation of limited mobility (within single cell). When in 2005 debate started for allowing full or greater mobility, there was a conscious decision not to follow the Indian path and maintain its market structure including number of mobile operators to ensure healthy competition in the sector. The end result was a healthy mobile industry, though expectations were not realized in the local loop segment.

by Muhammad Aslam Hayat, Regulatory Consultant, (Pakistan)

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