The long dragged-out drama of license renewal in Bangladesh has taken one step toward closure, according to the Daily Star.
The government yesterday finalised the process of how it will charge four mobile operators — Grameen-phone, Banglalink, Robi and Citycell — for renewing their licences for the next 15 years.
A high-profile meeting presided over by Prime Minister Sheikh Hasina decided that the operators will pay at the rate of Tk 150 crore for per megahertz of airwave, which will be multiplied by the total allocated spectrum and a ‘market competition factor’.
The meeting held at the Prime Minister’s Office also decided to give 3G (third generation) technology licences through auction.
The per-MHz amount has been set arbitrarily. But let us not dispute that. The operators can use as much frequencies as fit their business plans, returning some if the overall cost is too much. So that is also excluded from discussion. Now what remains is the “market competition factor.” What is this and why is it being included in the computation?
Telecom Secretary Sunil Kanti Bose said the operators will have to pay Tk 150 crore for per megahertz of spectrum and the amount will be finalised on the basis of their market share.
Now an operator with a big subscriber base will pay higher than a low-subscriber operator, he said.
“Otherwise some of the operators will be affected and won’t survive.”
Now Grameenphone will have to pay higher than its nearest peers; Banglalink and Robi will be in the middle, while Citycell will pay less, on the basis of the calculation — Tk 150 crore/ per megahertz of spectrum multiplied by the total amount of spectrum and the market competition factor.
The rate for all bands of spectrum — including GSM 1800 Mhz, 900 Mhz and CDMA 800 Mhz — will be the same: Tk 150 crore.
Before we get to the main point, look at the last line. The per MHz price of frequencies in three bands with different characteristics are the same. What are these characteristics that have a bearing on arguments based on the “level playing field” metaphor?
Most handsets in the market are designed for GSM 900 and 1800 bands. Network and customer equipment that can be used in these bands are quite cheap, because they are the foundation on which the mobile boom was built. The propagation characteristics of 900 are “superior” to 1800 in terms of distance, making it somewhat more attractive in low-population-density rural areas. But in densely populated urban areas, 1800 has advantages. Therefore, most operators like to work with a mix. No big problem about pricing 900 and 1800 the same, as long as all operators have a mix.
In purely technical terms, one could argue that CDMA is superior to GSM, in that one can easily operate a CDMA network on 2.5 MHz, whereas GSM requires around 5-7.5 MHz minimum. However, as evidenced by worldwide market share of GSM and the decision of Reliance and Tata in India to cease to be solely CDMA operators, suggests on balance that GSM may have the edge. Of course, 3G and 4G will over time make the CDMA-GSM competition irrelevant.
What the relative efficiency of CDMA means for the renewal pricing debate is that Citycell, the sole CDMA operator appears to benefit from the decision to equalize spectrum charges in the three bands, given it can function with less frequencies than GSM operators. But this may be offset by the possible lower prices for GSM network equipment.
Now we come to the nub of the problem, Secretary Bose’s justification for charging operators with more customers a higher per-MHz price than those with fewer customers. The smaller operators will not survive, unless we do this he says.
So let us look at an analogy. Let’s assume Bangladesh has five manufacturers of bottled water, with the following market shares: A has 50% of the market; B has 20%; C, D, and E have 10% each. The government controls and sets the price for the input which is “raw” or unprocessed water. If a unit of raw water is priced identically to all manufacturers, A will pay 5 times what C,D,E pay and 2.5 times what B will pay.
Should the government include a market competition factor into the pricing and make A pay more than 5 times what C,D and E pay, and more than 2.5 times what B pays?
Now take the analogy further. By being more efficient (e.g., collecting rain water, reducing waste in processing, etc.), A manages to supply 50% of the bottled water market, but without taking 5 times the raw water as C, D and E. The market competition factor is derived from market share, not from how much raw water is used.
Will this pricing formula cause A to drop marginal customers, in order to reduce market share and thereby reduce the market competition factor? Will it cause it to invest more in efficiency in order to reduce the use of government water?
The former is a bad thing, in light of Bangladesh being the pioneer of the Budget Telecom Network business model that has enabled it to offer the lowest prices for voice in the world. The latter is not a bad thing per se, but given the way networks are operated, could have negative effects on quality of service. If the objective is that of conserving the scarce input (raw water or spectrum), would it not be better to have “slab pricing” for the input: x per unit for units 1-10 for example; x+y per unit for units 10-20; and so on.
So the government decision is peculiar, indeed.
And a last question. It is well known that market shares change over time. The above analysis indicated that the big players will now be incented to drop marginal customers and reduce market share (not revenue share). So the question then is whether the market competition factor will be recalculated periodically and the price per MHz adjusted accordingly? How exactly will the pricing scheme work in light of the fluidity of market shares?