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Telenor Ready To Pay $224.6 Million, Legal Battle Continues

Amidst the news reports that the Islamabad High Court (IHC) has directed the telecom giants Telenor and Jazz to deposit 50 percent of license renewal fee i.e. around Rs36 billion each in two weeks, Telenor Pakistan has announced that it has offered to pay $224.6 million to the government “under protest” for license renewal purposes.

The licenses, which Telenor and Jazz had acquired in 2004 through an auction at a cost of $291m or approximately Rs17 billion then, expired over two months ago on May 25. The government had demanded a sum of $450m apiece by August 21 from both companies in order for them to renew their licenses. The figure apparently has been calculated using the spectrum auctions that took place in 2016 and 2017 as a benchmark.

In a press statement, Dawn reported, Telenor Pakistan said that the renewal of its license was delayed by the Pakistan Telecommunication Authority and “faces further delays due to unfair demands on pricing and rollout obligations”. The paper added that the company has cautioned that legal and financial hurdles created by the authorities “may significantly distort the competitive landscape” of the telecommunication industry in Pakistan.

“Telenor Pakistan has been very keen towards timely renewal of its telecom license and, in the past two years, tried its utmost towards a fair and transparent outcome,” the paper quoted from the statement.

The company emphasized that it had made the offer “to safeguard the interests of its valued customers” and added that it would continue to “pursue its legal case to fully protect its rights available under the law”.

“The company remains hopeful of a fair outcome and looks forward to the government and PTA to fulfill its commitment to ensure fair competition and forward-looking policies and regulations,” the statement concluded.

The Curious Case of License Renewal of Mobile Operators

Jazz and Telenor have asked the government to renew their license at the same dollar price – $291 million – at which the license was acquired back in 2004. However, the federal government has approved the renewal policy of two telecom operators at $450 million each for 15 years. In the face of expiry, the companies have sought the court’s help as the continuity of their business is in jeopardy.

Because of the uncertainty, both the companies had approached IHC asking for “clarity” on the terms of the license renewal that it says should be done “in an equitable, fair and transparent way.”

While granting a stay, the IHC had barred Pakistan Telecommunication Authority (PTA) to not take any action against the companies. The mobile phone companies had petitioned IHC against PTA over delay in the license renewal policy by the government. In the face of expiry, the companies had sought IHC’s help as the continuity of their business is in jeopardy.

Since the process of renewal has taken so long – roughly over two years – the companies have requested the court that the “government should be stopped from taking any adverse action that limits the ability of the operators to carry on their business”.

Dispute over Renewal of License

The court order prompted government to proceed with the renewal request in the cabinet meeting on May 7 wherein it was decided that the license should be renewed at $450 million in the light of the spectrum auctions held in recent years.

However, both the companies have maintained that as per the telecom policy and relevant clauses in the license itself the first renewal should take place at the same price that the license was originally acquired at – $291 million.

Experts’ Opinion on the Issue

Ikram Sehgal, a renowned defence and security analyst, stated in his op-ed in Daily Times that the request that (PTA) should have started the renewal process a long time ago is justified but the demand that they want the price for the renewal of their license fixed at the amount at which the license was acquired “is certainly not justified.”

Sehgal states that VimpelCom (VEON) group owns Jazz which is requiring the renewal of the Jazz license in Pakistan that is due later this month. He says the license had been issued for Rs16.8 billion ($ 291 million) in 2004 and is now worth Rs41.4 billion ($ 291 million).

He has argued that the cost of the spectrum must go up substantially since the last license 15 years ago and (1) total population of Pak has increased by 50 million (2) target coverage which was 1/20th of country and it is now 100% covered (3) telecom industry had a mere 5 million subscribers, and now it has over 140+ million customers (4) Spectrum prices are generally higher when the economies are in high sovereign debt and limited access to financial markets (5) Spectrum assignments are often seen as a simpler way to raise additional revenues than introducing or raising taxes (6) Given that spectrum prices are unlikely to determine government debt, the more plausible interpretation is that governments in developing countries experiencing financial challenges are using spectrum assignments to increase public sector revenues.

On the other hand, Khurram Husain had opined in Dawn that both companies have found themselves in a position where they could face an expiration of their license without any renewal, meaning the continuity of their business would be in jeopardy, which in turn would necessitate instructions to their parent companies that might be forced to issue notices to their shareholders in international stock markets that their Pakistan operations faced a risk to business continuity.

He stated that such a notice would have severe adverse consequences for the share price of the parent companies, thereby sending a message to global markets that Pakistan is a risky place to invest in since the government has a difficult time discharging its obligations towards investors.

For now, he had said in May, if the stay order remains in place, both companies will be allowed to continue operations beyond the expiration of the license while they negotiate the price with the government.

He had concluded that if the court vacates the stay then the companies would be at a disadvantage but if the court entertains companies’ plea that the government “is not interpreting its own policies in a legal manner” then that would be a more optimistic scenario for the companies.―Global Village Space

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