What is 3G / 4G and the Auction Process?

By Unknown - Friday, April 25, 2014 - No Comments

Pakistan’s Telecom industry is undergoing its most crucial time since the deregulation of the telecom industry back in 2004. Amid spectrum auction of 3G and 4G licenses, there have been serious confusions – particularly amongst the media – which is not only causing serious damage to the people of Pakistan but to our economy as well.

Through this post we will try to help you understand 3G, 4G and the whole auction process, in plain simple language.

3G / 4G Process

What is 3G / 4G?

For an easy understanding, 3G and 4G are wireless technologies that enable mobile phone users to get high-speed internet on their cellular devices.

Practically speaking, 3G technology allows operators to offer wireless broadband speeds of 512Kbps to 2Mbps, while with 4G technology, operators can offer from 2Mbps to 10-15Mbps internet speeds. (P.S. Theoretical speeds for 3G and 4G are different to what are mentioned here)

Internet’s speed with 3G and 4G depends on your distance from the cell site and number of users connected with the particular cell site. The nearer you are from the cell site, the higher the speed and vice versa. Similarly lesser number of users on a cell site means higher speeds and vice versa.

So basically its just the addition of wireless broadband services that we will get with 3G and 4G. However, with this broadband on mobile phones the entire echo system is going to get reshaped.

For example, you will be able to enjoy Video calling through Skype or other similar apps, browse websites on the go, make financial transactions online, collaborate with colleagues, and so on.

A practical example is about shooting a video with your smartphone and then sending it to your news-room instantly. The whole process will require just a phone and a 3G/4G connection and you are all set to report for virtually anything – that too without the high-tech TV Van with VSAT connectivity and all.

Basic Information

In order to offer 3G and 4G services operator needs a spectrum. The Government of Pakistan decided to auction this required spectrum from 2100Mhz and 1800Mhz bands for 3G and 4G services respectively.

If you aren’t familiar with the term spectrum then please click on this link to know what spectrum means and how it is used for telecom services.

Spectrum is a limited resource, i.e. its not unlimited and hence it is considered a valuable national asset. Spectrum is always auctioned through bidding, unlike LDI or Local Loop licenses, just because a government can sell any number of LL licenses (because you don’t need any limited resource for LDI or LL); however this is not the case with spectrum.

Therefore, we will have this auction for spectrum taking place for 2100 and 1800Mhz bands.

Operators were invited to bid for the said spectrum through which they will be able to offer wireless broadband services.

Available Lots

Government of Pakistan allocated 30Mhz from 2100Mhz band for 3G licenses while 20Mhz from 1800Mhz for 4G licenses. This allocated spectrum from both bands is then divided into Lots that are put on sale through auction.

Lot details are as following:

Lot A:

One 3G spectrum of 10 MHz from 2100Mhz
One 4G spectrum of 10 MHz from 1800Mhz

Lot B:

One 3G spectrum of 10 MHz from 2100Mhz
One 4G spectrum of 10 MHz from 1800Mhz

Lot C:

One 3G spectrum of 5MHz from 2100Mhz Band

Lot D:

One 3G spectrum of 5MHz from 2100Mhz Band

Base Price

Base price for 10Mhz block from 2100Mhz is US 295 million
Base price for 10Mhz block from 1800Mhz is US 210 million

Auction Process

Above mentioned lots will be auctioned separately, hence, operators were asked to show their interests for the Lots mentioned above.

Here are the rules for bidding:

Operators must show interest in at least 10Mhz for both 3G and 4G spectrum
Operators can not show interest in more than 15Mhz for 3G spectrum and 10Mhz for 4G spectrum
All lots are to be bought in a bundle. For example Lot A comprises of 10Mhz for 3G and 10Mhz for 4G spectrum, and hence the base price for Lot A would be US 505 Millions (base price of 10Mhz of 3G plus the base price of 10Mhz of 4G spectrum).

With these rules in place, let’s assume few possible bids that operators might have placed:

Not to forget, there would be two rounds of auction. In first round – on April 14th, 2014 – operators showed their interest in the blocks they are desiring to buy. Now, since the demand for spectrum is more than the supply hence there will be a second round of bidding on April 23rd where operator will bid for their desired Lots to win the spectrum.

Possible Scenarios

During first round operators submitted bids for their desired Lots. While at this point in time we don’t know the amount and kind of lots that operators have shown interest in, so we are just assuming few possible scenarios to help you understand the process.

(P.S. PTA will publicly announce the bidders and their interest on April 17th, 2014, i.e. tomorrow)

Let’s assume that Operator A has shown interest in Lot A and Lot C. While Operator B has submitted its bid for Lot A. Operator C has shown interest in Lot B, C and D. Operator D has shown interest in Lot C and D.

Check below table for understanding:

	Lot A	Lot B	Lot C	Lot D
Operator A	X		x
Operator B	x
Operator C		x	x	x
Operator D			x	x

If you notice, in this assumption no operator has exceeded the cap of 15Mhz in 3G and 10Mhz of 4G spectrum. Similarly, every operator in this example has shown interest for at least 10Mhz of 3G spectrum.

In this scenario,

Lot B will be granted to Operator C without bidding since no one has showed interest in Lot B.
For Lot A there will be a bidding between operator A and Operator B
For Lot C there will be a bidding amongst Operator A, Operator C and Operator D
For Lot D there will be a bidding between Operator C and Operator D

After first round, bidding will proceed with the second round with below possible situations:

During second round of bidding, operators will bid against the Lots they have shown interest (given the demand is more than the supply). Operators can only bid with 3% increment in value or more. Highest bidder will be assigned the spectrum.

Let’s assume following situation:

Operator C secures Lot B – since there was no competition.
Operator A submits highest bid for Lot C and wins it, while it withdraws from other lots
Operator B submits highest bid for Lot B and wins it
Operator D submits highest bid for Lot D and wins it.

Outcome:

Operator A Wins 5Mhz for 3G
Operator B Wins 10Mhz for 3G and 10Mhz for 4G
Operator C Wins 10Mhz for 3G and 10Mhz for 4G
Operator D wins 5Mhz for 3G

Just to note, operators can not bid for less than 10Mhz block for 3G, however, after biding they might win just 5Mhz block.

Check below another possible Scenario:

	Lot A	Lot B	Lot C	Lot D
Operator A	X		x
Operator B		x		x
operator C		x	x	x
Operator D	x		x	x

In this scenario, almost every Lot has competition and hence every lot will be sold through bidding.

Another Possible Scenario in First Round can be as following:

	Lot A	Lot B	Lot C	Lot D
Operator A	X		x
Operator B			x	x
operator C			x	x
Operator D			x	x

In this scenario, Lot B will remain unsold since no one has shown interest in it. However, Lot C and Lot D have a lot of competition and may generate significantly higher value of money than the base price.

Please note: This illustration was for understanding only and has been kept very simple without involving any technical terms. For complete understanding you may consult Information Memorandum for 3G and 4G licenses available on PTA’s website.

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