The 3G Conundrum

By Khurram Baig – 

With a change of guard, the telecom industry eyes a brighter future

How difficult can it be? The market is one of the fastest growing in the region. The middle class is rising. People have money to spend and smartphones are gaining in popularity. With smartphones now available for as little as Rs7,000, the market for 3G couldn’t be better. Yet for some odd reason, we just can’t get there.

Pakistan Telecommunication Authority and the lethargy of the government have been significant factors in the delay of the introduction of 3G spectrum into the country. There are also some who believe that PTCL initially was also a cause of many bottlenecks in delaying the 3G auction.

Is it any coincidence then that PTCL was privatized in 2005, and the government started its efforts to launch 3G in 2006, and that the process has been stalled, and eventually crashed and burned three times since then?

The issue, was simple, even if highly questionable. For a long time, the government and the PTCL couldn’t come to an understanding on what was a ‘new licence’.

But this is not to say that the PTA or the Pakistan government has actually been very proactive in this case. There is a further dynamic. 3G itself is heavily politicized. Opposition parties never wanted the PPP to be able to take on the mantle as the party that gave the country mobile internet.

The opposition parties always believed that stopping the 3G process would help their election campaign. And for anyone within the PTA with anti-government views, there’s plenty of scope for mischief.

The PTA has always been under a lot of political pressure, and it too, has been guilty of never really trying to assert itself, which, as a regulator, it should. Apart from causing a substantial financial loss, this has created a cycle of inefficiency and mistrust and nothing really gets done.

The PTA spent Rs20 million advertising for consultants who were eventually hired and subsequently fired without being paid a penny. On November 23, 2012, PTA had hired Rob Nicholls from the Australian law firm Webb Henderson; Dennis Ward, the former spectrum auctioneer for the Canadian Spectrum Management Program; and Martin Sims from the spectrum specialists PolicyTracker.

However, PTA’s Member Technical (MT) Khawar Siddiq Khokhar and Member Finance (MF) Nasrul Karim Ghaznavi opposed the appointments of these consultants. Khokhar and Ghaznavi maintained that their former chief Farooq Awan had hired these consultants against the law and that they were not consulted at all by Awan at any stage of the process.

This opposition led to an internal turmoil and grouping within PTA with Awan on one side while Khokhar and Ghaznavi on the other. The issue then came on the radar of National Accountability Bureau (NAB), which declared the hiring of consultants as illegal and PTA eventually terminated the said contracts in December, 2012.

The three consultants, Martin Sims, Dennis Ward and Rob Nicholls contemplated suing the PTA but then decided against it. At least Sims and Nicholls hope that they may get a chance to work with the PTA under the new setup, and eventually get paid the fee they were promised.

“The PTA is being cavalier with public money,” said Rob Nicholls. “Instead of adopting this ‘head in the sand’ approach it should make an arrangement to settle its debts and bring us back after the election to complete the auction.”

Going back to the issue of mistrust, with its constant failure to auction 3G, the PTA has lost the trust of the political leadership.

Last year, the government parachuted in a new chairman, Farooq Ahmed Awan, who had a reputation for “getting things done”. The prime minister set up an auction supervisory committee to drive things forward.

Apparently, this ruffled feathers at the PTA, notably those of the other two members of the PTA executive body, the Member Finance and the Member Technical. They claimed to be unfairly sidelined and eventually, the courts agreed, ruling that the Awan was unlawfully appointed. And Awan is now back in the PTA.

A cycle has been created: PTA underperforms, government intervenes and the intervention fails because of legal challenge or internal PTA opposition. It is a circle of distrust and until it can be broken, Pakistan’s telecoms sector will suffer and the country will continue to miss out on a huge opportunity for economic development.

But with a new government in place, a lot of the telecom players feel the situation will get better. They are tired of cellular outages under the previous regime, the failure to get the 3G auction off first base and also the fact that the previous government was putting in place a lot of rules and regulation which — necessary or not — were generally making it more inconvenient for them to do business.

The PML-N has claimed in its manifesto that it will move directly to 4G technology. It also said it will promote and facilitate the software industry to develop applications accessible through 4G and LTE networks.

Telecoms like Telenor, which is ready for 4G, and Mobilink, which says it has the infrastructure in place for 3G are pleased with the fact that the PML-N will be in power.

Atifa Asghar, Director Corporate Communications at Telenor is on the record voicing her confidence in the PML-N, “In their previous two tenures, the PML-N had always had business-friendly policies, which had a positive bearing on the corporate sector. We hope that their previous positive approach will continue and business, in general, and the telecom sector, in particular, will benefit hugely from their policies.”

Sikander Naqi, Adviser to the Zong CEO, summed it up aptly. “The new government should appoint a minister who understands the issues facing the IT industry. And it should have an effective regulator, which can successfully hold the much-delayed 3G auction.”

In the previous government, Gilani kept the IT ministry with himself. Need one say more?

Of times gone by…

There was a time when PTCL, as a public sector company, used to lend to the Pakistan government. Sure, a lot of this — probably, all of this — was off the books, but the point one is trying to make here is that the corporation had always been so cash-rich that it actually had the ability to sustain part of the government’s voracious appetite for borrowing and still manage to keep on going.

It probably is just as cash-rich since it is a utility that has revenues in the billions, but of course the days are long gone when the government could piggy back off it.

The privatisation raised many questions, but as far as I am concerned there was just one issue. The government has handed over a monopoly — in the absence of any other land-line provider — to the private sector.

This is a problem in any case, but is more so for Pakistan in the presence of a regulator that has failed to do its job. PTA is a strange mix of corruption and lethargy. Being toothless, it’s hard to tell if it wants to do a good job but doesn’t have the resources, or has the resources but doesn’t want to use them.

And as a result of this, the bulk of the fibre-optic infrastructure in the country now belongs to either PTCL or Wateen Telecom. This creates problems for any other player who wants to enter the market, again in the absence of an effective regulator.

And there was a clause in the privatisation deal for the telecom giant — which gave management control to Etisalat — that the government would not allow any new operators to enter the local market for a specified period of time, in other words not issue any new telecom licences.

But the issue cropped up when PTA decided to go ahead with the 3G auction, terming it the auction of a 3G licence as well as auction of the licence vacated by Instaphone.

PTCL had an issue with this saying that this violated the agreed-to terms where no ‘new licence’ was to be issued. It seemed the PTA and PTCL were unable to come to an agreement as to what a ‘new’ licence constituted. Later, it transpired that the issue was much more complicated than that.

The real issue why PTCL has attempted to put a roadblock in any initiative to allow new entrants into the market is mainly because PTCL has had an issue with grey traffic, saying that it was a big dent on their earnings and until and unless the government did something about it, there would be no moving forward.

The case about Etisalat holding back a privatisation payment to the government of Pakistan because certain assets had yet to be transferred is also basically just a front for the actual bone of contention which is grey traffic.

That is where the ICH comes in, or the International Clearing House, which basically has created a collusive monopoly of Long Distance International or LDI operators.

My bet is if the ICH issue is resolved, we will get 3G!

The writer is a print and broadcast journalist with expertise in IT based in Karachi.