High Spectrum Prices Hit Nigeria, Others

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  • High Spectrum Prices Hit Nigeria, Others

Spectrum prices in Nigeria and other developing countries are, on average, more than three times higher than in developed countries when income is taken into account.

This is according to Spectrum Pricing in Developing Countries, a new report released by the global system for mobile communication (GSM) Association (GSMA). It found high spectrum pricing as a major roadblock to increasing mobile penetration in developing nations.

The study was designed to identify and investigate trends in spectrum pricing in developing countries, their drivers and potential impact on consumers.

Government and regulators were found to play a key role in increasing spectrum prices through policy decisions. Administrations are able to do this by setting very high reserve prices for spectrum auctions, constricting the supply of spectrum, which forces operators to overpay, not publish a spectrum roadmap and use poor award rules.

The organisation says policies that seek to maximise state revenues can have a negative influence on consumer outcomes, including more expensive mobile services and reduced network investment.

Better spectrum pricing policies are needed in developing countries to improve the economic and social welfare of the billions of people that remain unconnected to mobile broadband services, highlights the report.

Head of Spectrum at the GSMA, Brett Tarnutzer, said: “Connecting everyone becomes impossible without better policy decisions on spectrum.

“For far too long, the success of spectrum auctions has been judged on how much revenue can be raised rather than the economic and social benefits of connecting people. Spectrum policies that inflate prices and focus on short-term gains are incompatible with our shared goals of delivering better and more affordable mobile broadband services.

“These pricing policies will only limit the growth of the digital economy and make it harder to eradicate poverty, deliver better healthcare and education, and achieve financial inclusion and gender equality.”

The GSMA analysis is based on the assessment of over 1 000 spectrum assignments across 102 countries, including 60 developing and 42 developed countries, from 2010 through 2017.

Among the countries included in the analysis are Algeria, Cameroon, Bangladesh, Brazil, Colombia, Egypt, Ghana, India, Jordan, Mexico, Myanmar and Thailand; all markets where spectrum licensing is a priority.

Concerning Nigeria, the report recalled that in May 2016, the Nigerian Communications Commission (NCC) auctioned 2×70 negahertz (MHz) of spectrum in the 2.6 gigahertz (GHz) band. The spectrum was split into 14 lots of 2×5 MHz with a reserve price of $16 million per lot. Although the price was not particularly high when benchmarked, the price denomination in US dollars made the potential investment riskier given the instability of the local currency exchange rate against the US dollar over that period. The naira depreciated by more than 20 per cent in the two years preceding the auction and experienced an even more severe drop (42 per cent) over the two years after, making it more expensive for operators to finance their spectrum payments

Eventually, one bidder (MTN) secured six of the lots available (equivalent to 2×30 MHz of spectrum) at the reserve price, while the rest of the spectrum remained unsold. Leaving a large amount of capacity spectrum unsold will likely hinder the development of the mobile market in Nigeria, which is one of the world’s most populated countries. Nigeria’s 4G market penetration trails the average for sub-Saharan Africa.

Way forward

The GSMA is of the view that a well-designed spectrum policy is a critical input for a thriving digital economy.

The report notes high spectrum prices and lack of transparency in assigning spectrum can discourage LTE rollouts, constrain consumer welfare and delay the closing of the digital divide.

It said: “Making substantial amounts of spectrum available at prices that lead to an efficient and growth-promoting allocation of spectrum can help realise vital digital development goals through affordable, high-quality and widespread broadband services.

“With advanced 4G technologies requiring increasing amounts of spectrum, it is crucial that spectrum policies in developing countries support fast and sustainable development of the mobile sector. This helps realise maximum benefit for citizens, particularly the digitally excluded.”

The GSMA report puts forward four ways to remedy issues of high spectrum prices for developing nations. The first is to set modest reserve prices and annual fees, and rely on the market to set prices. Number two is to license spectrum as soon as it is needed and avoid artificial spectrum scarcity. The third is to avoid measures which increase risks for operators; and lastly to publish long-term spectrum award.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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