The Untold Story of NCC’s 2.6GHz Spectrum Auction

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Emma Okonji examines the circumstances that triggered the absence of competition during the 2.6GHz spectrum auction that produced MTN as the sole bidder and winner of the national spectrum

Following the successful auction of the country’s 2.3GHz spectrum, which Bitflux won in February 2014, the Nigerian Communications Commission (NCC), commenced the process of licensing the 2.6GHz spectrum in August 2014. But the regulator announced the suspension of the planned auction in December 2014, citing administrative challenges.

In February 2015, the NCC commenced another plan to auction the spectrum, but again suspended the plan in March 2015, after a new date for the auction was fixed and the Information Memorandum (IM) announced and uploaded on the NCC’s website.
Having suspended the auction of the 2.6GHz spectrum twice, NCC, on February 25, 2016, placed a publication for the resumption of the 2.6GHz frequency spectrum auction, which was followed by a period for the submission of questions to the commission, relating directly to the licensing process defined in the information memorandum.

According to the IM, the actual bidding was to commence with preliminary auction exercise from May 16 to 19, and by June 10, 2016, spectrum winners must have made full payment for the licence won. Also, by June 13, 2016, the NCC was expected to have announced the winners that complied with full payment directive. But to the utmost surprise of NCC, only MTN indicated interest to bid for the licence.

It was in April 29, 2016, when the application was closed to all operators, to give room for the auction committee to scrutinise the applications and inform those that will qualify for the bidding exercise, that NCC realised that only MTN indicated interest to bid and had applied for six lots out of the available 14 slots in the 2.6GHz spectrum licence.
It was at that point that NCC reviewed MTN’s application and in June this year, announced MTN as the winner of the 2.6GHz spectrum licence.

NCC had come up with strong passion to auction the 2.6GHz spectrum but little did the regulator know that the operators were not willing to participate in the auction for some undisclosed reasons.

The operators’ refusal to let NCC know of their plans to back out as at the time the bid was declared open in February this year, made NCC to believe that the operators were willing to bid initially.

The operators, who spoke this week in Lagos at a postmortem event on 2.6GHz auction, organised by NCC to find out what informed their inactive participation in the exercise, said they were not comfortable with the conditions for the auction exercise, hence they decided to back out from participating in the auction.

The operators believed every auction exercise, where the highest bidder wins, has the characteristics of being lopsided, and designed to favour only big operators that have the financial muscles, to the detriment of small operators who have limited financial base. They also said they were worried and uncomfortable with the high reserve price of $16 million per lot, owing to the poor economic state of the country. For these reasons, they backed out of the race to bid, leaving the NCC and MTN in a world of their own, without disclosing their plan to the regulator.

About 2.6GH spectrum

The 2.6GHz spectrum licence, which has been issued to MTN, is a 10-year licence, designed to boost broadband and internet penetration. The 2.6 GHz band, which spans from 2.5 GHz band to 2.7 GHz band, is generally considered to cover the frequency range between 2500-2690MHz, although there are some minor national variations among countries in the use of the frequency band.

The frequency band was designated for mobile terrestrial services, and other applications of the frequencies in this band, which vary by country and region, include satellite services – fixed, mobile, and broadcast – as well as terrestrial video broadcasting. In certain countries, frequencies in this band are still occupied by non-commercial entities, such as the military.
The 2.6 GHz band is often referred to as the ―IMT-2000 expansion band II and is sometimes called the 3G expansion band.

Spectrum licences generally, are discussed at the international level between countries that need them and the International Telecoms Union (ITU), that superintends over telecoms regulation globally. After the discussions and approval by ITU, based on availability of the spectrum, individual counties will then take the spectrum to their various countries to deploy, by selling the spectrum to operators through any sales model as approved by individual country. Such is the case with 2.6GHz spectrum.

Cost of 2.6GHz and NCC’s reserve price

The 2.6GHz spectrum has 14 available lots and MTN bided for six lots at a reserve price of $16 million per lot. Since MTN indicated interest to acquire six lots, MTN had to pay 10 per cent of the total bid price of $96 million for the six lots, which is $9.6 million, as part of the pre-qualification process. By adding the 10 per cent compulsory payment of $9.6 million to the actual cost of the six lots that MTN bided for, which is $96 million, it means MTN must have paid NCC the total sum of $105.6 million to clinch the six lots of the 2.6HGz spectrum.

Reasons for operators’ decline

Telecoms operators have openly spoke about the circumstances that made them stayed away from the auction exercise of the 2.6GHz spectrum. According to them, they deliberately declined to bid for the auction, despite the awareness created around the spectrum by NCC, for the fact that they suspected that the conditions for the auction would pose serious business risk for them.

The Chief Executive Officer of Spectranet, Mr. David Venn, said although the auction exercise appeared transparent just the same way NCC had conducted previous licence auctions, he said operators feared that the auction was meant for big operators who have the money to play with. He said the smaller operators felt they would eventually lose out by the end of the day, hence they all declined. He suggested that going forward, NCC should consider the revenue sharing arrangement for allocation of spectrum, instead of the auction exercise. He said as at the time NCC was considering the auction exercise, the price of data had already crashed in the telecoms market, a situation that affected the revenue generation of operators to bid for the 2.6GHz spectrum, which he said, had always attracted heavy capital investment.

The Director, Regulatory and CSR, Etisalat Nigeria, Mr. IkennaIkeme, blamed the situation on lack of access to local funding, which he said, made telecoms business very difficult, and also slowed down investment in telecoms. Going forward, he advised NCC to combine expensive spectrum like 2.6 GHz, with other cheaper spectrum like the 700MHz and 800MHz spectrum that are less expensive. Ikeme suggested that NCC should consider using the Universal Service Provision Fund (USPF) to drive rollout of spectrum licences.

A director at Airtel, Mr. Lateef Akintunde was of the opinion that the reserve bid price of $16 million per lot, was on the high side. He explained that the cost of spectrum rollout was also expensive and must be factored in when bidding for any spectrum.

Director, Regulatory Affairs at ntel, Mr. Osondu Nwokoro attributed the inactive participation of operators to the high cost of dollar rate to naira and explained that at the time NCC called for auction of the 2.6GHz spectrum, dollar rate was already climbing high, making it difficult for operators to invest in the telecoms sector. Nwokoro, who supported the idea of revenue sharing formulary for subsequent auctions, however, said the auction process remained the best option, if properly handled to accommodate all players, both the big and the small players. He advised the NCC to reduce the reserve bid price to enable operators roll out the spectrum, after paying for it. He said there was need for rollout obligations and implementation, to enable operators rollout won spectrum licences without delay.

Others who spoke at the forum advised NCC to allow spectrum trading, a situation, they said, would encourage operators to participate in future auction of spectrum licence, if they know they could resell their spectrum to a willing buyer before the expiration of the license.

Effect of decline

Industry experts have said the deliberate decline of operators to bid for the county’s 2.6GHz, is an indication that the operators were not finding it easy to do business, as a result of the harsh economy of the country. The experts, however, said the refusal to bid, has negative impact on broadband penetration, especially now that the National Broadband Plan is targeting 30 per cent broadband penetration in 2018.
They explained that operators need ubiquitous spectrum to drive broadband penetration in the country and that anything that could stifle the availability and spread of spectrum licences, should be discouraged by the NCC.

NCC’s position

Having been formally informed as to why they shunned the auction, the NCC said it would take the feedback to the commission for further deliberation and action. The Executive Vice Chairman of NCC, Prof. Umar GarbaDanbatta, who was represented by the Director, Public Affairs at NCC, Mr. Tony Ojobo, said: “The Commission in consonance with its practice of collaborative regulation, seeks to get useful industry feedback on the auction with the aim of ensuring the effective and efficient usage of available spectrum bands for the delivery of broadband internet access to Nigerians.”