A spectacular spectrum auction vs. a thriving telecommunications marketplace

On the eve of March 8, 2021, Bangladesh Telecommunication Regulatory Commission (BTRC) officials were smiling—the 2021 4G auction brought a lot of money to the public exchequer! After 81 rounds, the auction ended with USD 46.75 million/MHz for 15 years, making it a record in recent years. Congratulations BTRC! However, please don't forget that most successful auctions are not necessarily the ones that bring the most revenue, and the top priority of spectrum auctions is to support affordable and high-quality telecommunications services. The latter can only be done if the regulatory regime is less uncertain, the operators' operational cost is manageable, and regulatory oversight on the marketplace is firmly established.

The information and communications technology reduces inequality, ensures good governance, and improves human capital. It is well-recognised that a robust and thriving telecommunications marketplace is one of the prerequisites of achieving Sustainable Development Goals (SDG). Wireless spectrum bands are the conduits of mobile telephony. Generally speaking, more spectrum ensures a better quality of service to the users. However, the spectrum needs to be allocated efficiently as the usable spectrum is scarce. Governments around the world provide spectrum licenses to operators for the best use of the resource. Among the many users of the spectrum, mobile phone companies generate the highest revenue. From time to time, the Bangladesh government, through BTRC, releases spectrum for different use. Since 2013, Bangladesh has been auctioning off specific bands of spectrum. However, not all of the auctions resulted in success. The 4G auction in 2018 was not a happy story to tell.

Traditionally, there are two spectrum assignment methods—auction and administrative award, popularly termed as a beauty contest. In administrative award, applicants submit proposals to be evaluated by the authority for assignment. In auctions, the operators compete against each other and the highest bidder generally becomes the winner. Research and practice show that auctions, if designed carefully, can ensure the best use of spectrum band. Revenue from spectrum award came into sharp focus in 2000 when the UK 3G auction raised 22 billion pounds. Subsequently, auction in Germany raised even more. These auctions opened the eyes of the national governments. Countries started to think of spectrum auctions as a way to reduce their growing national budget gap. The history of auctions shows that in many countries, the high price paid to grab spectrum band caused a rollout failure and, in the end, consumers were left with a high-priced, low-quality service.

The 2021 auction assured the government close to double the sum it hoped for as reserved price for the 2100 MHz. The two most prominent market players competed with each other for more than 65 rounds in what can be called a "war of attrition", coined by the famous game theorist John Maynard Smith. This indicates that the operators were hungry for more bandwidth and were in fear of failing to grab enough. At the end of the day, it seems that for a similar product, different operators paid differently, and even though the operators may not say so, there is a chance that this upfront payment may affect their rollout process.

BTRC's task is to ensure the best use of spectrum. That means it has to make sure that the asset is neither overvalued nor undervalued. Many would argue that the price paid by the mobile network organisations (MNOs) was too high for our market. If that is the case, there is a chance that the MNOs will not have much in their pocket to pay for the expansion of infrastructure that is needed to ensure efficient use of the asset. And if that happens, then in the end, the consumers will pay the price by paying more money and getting worse service.

In theory, the price paid for spectrum should be treated as "sunk cost", which should never impact the operational price. However, the thing is, after getting spectrum, operators need to invest a large amount in infrastructure development. In a market where the regulators do not have enough capacity to oversee the marketplace, it is difficult to make sure that all the operators are keeping their commitments to ensure affordable and quality access. However, there are a few regulatory initiatives that can be considered by BTRC to ensure the market has the necessary mechanisms to keep it robust and growing.

A majority of the users in Bangladesh access ICT services through the mobile network. Therefore, it is important that the network is robust, and the pricing of mobile broadband is affordable. However, according to a report published in 2019 by the International Telecommunication Union (ITU), the UN body responsible for telecommunications, the price of data in Bangladesh is higher than our neighbours like India, Pakistan, Sri Lanka, Bhutan, and Myanmar. The report provides comparative analyses of high and low use packages, fixed data packages, bundled voice and data packages, etc. In most, if not all, the neighbours are performing better than Bangladesh. This means that we pay more than our neighbours to access data services. Hence, one of the regulatory goals is to reduce the affordability gap that exists in emerging economies.

As spectrum is now available, BTRC needs to concentrate on removing all roadblocks against rolling out. Increasing coverage and ensuring service quality are prerequisites of reducing the affordability gap. Presently, not more than 30 percent of the country is covered by 4G—the technology that is optimised for mobile broadband. However, firms are unlikely to invest if the regulatory environment is uncertain, the operational cost is high, and profits are negligible. Even today, most of the operators claim that they are not making any profit. On the other hand, users are suffering from call drops, low data rate, and many other quality-of-service issues. Till today, only around 15 percent of cell towers are connected via fibre-optic lines, which is a major hurdle to better coverage. The fibre companies need to be monitored for quality of service. Also, the present Towerco regime that separates the operators from the tower owners needs to be monitored so that towers are built at a higher pace. Any collusion and uncompetitive behaviour in the fibre and tower sectors will create more regulatory uncertainty and hinder the rollout process.

BTRC may also lobby to reduce the data-specific taxes and levies further. Already, VAT imposed on data use is 5 percent, which is lower than the VAT for any other commodity. However, most of the burdens of taxes and levies fall upon the users. Until better service quality is ensured—and while the operators expand their mobile broadband network—the government should make sure that, at least for the next few years, the infrastructure builders, network providers, service givers, and consumers pay the least. This should help improve the coverage and enhance the diffusion of mobile broadband. At the same time, BTRC should be vigilant to check cross-subsidy, predatory pricing, and reduce the confusion on data packages that are prevalent in the present market. The 2021 spectrum is a good start but there are still miles to go before BTRC can rest.

Moinul Zaber, Ph.D. is a Senior Academic Fellow at Operating Unit on Policy-Driven Electronic Governance (UNU-EGOV), United Nations University, Guimares, Portugal. Views expressed in the article are those of the writer.