Stunted Growth: High Upfront Fees Crippling Telecom Sector in Developing Countries.

Telecom sector constitutes the backbone around which any modern society pivots. The?PESTLE analysis ?of any modern society points back to this one established fact i.e.?penetration of internet and broadband services. The ICT sector curates the outlook of any contemporary society.

The transition of societies from the era of the third to the fourth industrial revolution is closely linked to the level of access to the internet and how receptive and supportive the state and its governance system are towards its widespread availability.

SDG 9C ?refers to the target under?Sustainable Development Goal 9?(Industry, Innovation and Infrastructure) which aims to “significantly increase access to information and communications technology (ICT) and strive to provide universal and affordable access to the internet in least developed countries by 2020”.

It is widely recognized that bridging the digital divide is a critical priority for the development of the ICT sector and that efforts should be made to prevent the emergence of a global north/south divide. Ensuring universal access to digital infrastructure and services can unlock economic opportunities and promote social inclusion, while also driving innovation and growth in both developed and developing countries alike.

Cause:

Among the diverse factors that impede the growth of the Telecom sector, is the?role telecom regulators assume for themself. It is something that is quite dependent on the governance mindset prevalent in any society. They are quite antithetical across the divide.

Regulators in?developed countries?will ensure, through structured policy measures, that a conducive environment is provided to operators. At the same time, a regulator in?the developing world?will?have an extractive nature of the relationship with operators, where policies are meant to make process cumbersome and create opportunities for corrupt practices.

Effects:

• Limited investment in network upgrades: High upfront fees can be a significant burden for telecom operators, particularly in developing countries where the cost of network upgrades can be high. This can discourage investment in network upgrades and expansions, which can ultimately lead to poor QOS and greater no-coverage dead zones.
• Limited competition: The imposition of high upfront fees can also result in limited competition, as smaller players may not be able to afford the fees, resulting in the concentration of the market in the hands of a few dominant players.
• Reduced affordability: High upfront fees can lead to higher prices for consumers,?as telecom operators may pass on the costs of the fees to customers in the form of higher tariffs.?Making telecom services less affordable.
• Delayed or limited network rollouts: Operators may delay or limit network rollouts,?which is also a major clause of the license, due to high upfront fees, resulting in slower adoption of new technologies such as 4G and 5G.
• Reduced government revenue: High upfront fees can discourage operators from participating in spectrum auctions.?This can have a negative impact on government finances, particularly in countries where?spectrum auctions are a?significant source of revenue.
• Reduced investment in other areas: High upfront fees can divert investment from other areas such as?research and development, customer service, and marketing. Denting overall competitiveness of the telecom sector.

Analysis:

A competitive, and?transparent?auction process along with?a rationalized upfront license fee?will surely help promote the cause of telecom penetration.?Some illustrations of contradictory practices in this regard are as follows:

Rwanda, where the regulator reduced the upfront fees for 4G spectrum auction in 2018, resulting in increased participation by telecom operators,?with four operators successfully bidding for spectrum, including a new entrant into the market.?Rwanda Utilities Regulatory Authority (RURA) ?stated officially, that?internet penetration in Rwanda increased from 22% in 2017 to 34% in 2018.

In 2016 the?Indian?government conducted a spectrum auction where it cut the reserve prices of spectrum by up to?60%, which had a positive impact overall. According to the?Telecom Regulatory Authority of India (TRAI) ,?internet penetration in India increased from 28.7% in 2016 to 45% in 2020.

Mexican?government conducted a spectrum auction in 2018 where it reduced the reserve prices of spectrum by up to?30%. According to?the?International Telecommunication Union (ITU) ,?internet penetration in Mexico increased from 50% in 2018 to 62% in 2020.

Ghana, the Ghanaian government conducted a spectrum auction in 2015 reducing the reserve prices of spectrum by?up to 80%. As per the?National Communications Authority (NCA) ,?internet penetration in Ghana increased from 17% in 2015 to 28% in 2019.

Pakistan,?PTA ?went ahead with the auction in June 2021, with the same high upfront fee of?USD 1 billion. This decision was met with protests from the telecom operators, who argued?that the fee was exorbitant and would lead to higher consumer costs.?They also raised concerns about the lack of transparency in the auction process and the potential for anti-competitive practices.?The average revenue per user (ARPU) , a key tool for gauging the financial health of cellular mobile operators (CMOs), in?Pakistan, has dropped to $0.80 per month,?which is the lowest in the world.

Hence, rationalization of the auction process in line with global best practices must take place in countries with low coverage areas so that we can achieve SDG 9C in true letter and spirit.