Technology Times has learnt that MTN Nigeria on Wednesday paid the mandatory prequalification deposit for the 5G auction opening on December 13 in Abuja.
Two bouquets of 3.5GHz spectrum for 5G deployment in the country are to be auctioned by the Nigerians Communications Commission (NCC) with each attracting a $197.4 million reserve price in the first phase of bids holding in Abuja.
Technology Times checks reveal that MTN Nigeria made the IDB payment for the 5G auction yesterday, and it is believed that the list of entities that scaled this first hurdle may grow beyond the nation’s largest mobile network operator when the telecoms regulator announces the prequalified bidders.
Nigeria 5G Auction: What The Rules Say
According to the auction rules set by NCC, prospective bidders in the 3.5 Gigahertz Spectrum band auction being put up for sale to allow operators to deploy 5G services in Nigeria have to pay the mandatory IBD representing 10% of the $197.4 million to prequalify for the bids.
Yesterday, Dr. Ikechukwu Adinde, NCC Public Affairs Director, announced that the telecoms regulator extended the deadline for intending bidders in the Nigeria 5G auctions scheduled to expire yesterday to next Monday.
Adinde says the regulator decided to extend “due to the challenges posed to air travels as witnessed recently and considering that it may have some impact on intending bidders regarding the submission of their bids, the Commission hereby extends the deadline for submission of bids and Initial Bid Deposits (IBDs) to 5.00 pm on Monday, 29th November 2021.”
Meanwhile, operators and tech industry stakeholders, including MTN Nigeria which has joined the race have asked NCC to consider a downward review of the $197.4 million (estimated at N75 billion) reserve price.
According to the stakeholders’ comments reviewed by Technology Times, the telecoms regulator says it considers the reserve price set for the Nigeria 5G auction reasonable because it was benchmarked against other jurisdictions.
“The Reserve Price remains US$ 197.4 million”, NCC says explaining that it “benchmarked other jurisdictions in addition to other variables which may not have been considered by other studies before arriving at this reserve price which we believe is reasonable.”
This was in response to MTN Nigeria’s suggestion to the regulator that the Reserve Price be set at $50 million which the largest mobile operator in the country reckons “to be fair and reasonably discounted, and will encourage participation in the auction.”
For MTN, it is advisable that the Reserve Price should be low at a materially discounted spectrum market value.
It is also important because “the Reserve Price is related to market value derived from auction benchmarks but subject to a significant discount of about 50% to 60% to ensure that participation by all operators is encouraged and that all spectrum is sold”, MTN says.
The mobile operator cites a benchmark result conducted by Coleago Consulting Ltd that indicates a market value of US$ 83.7 million for 100 MHz of 3.5 GHz spectrum.
“In effect, this implies the Reserve Price of US$ 197.4 million set by the Commission is 136% higher than the estimated market value”, MTN says, noting that the “price is also not aligned with a materially discounted market value of spectrum and does not meet best practice. As such, this creates a very high risk of nonparticipation because the Reserve Price will likely exceed the value that operators place on the spectrum.”
Meanwhile, NCC says it “is unable to delay the auction as recommended” by MTN Nigeria, which is asking the telecoms regulator to defer the 3.5Ghz spectrum auction in which only two licence lots are on sale “until such time that the presently encumbered lots have been cleared and become available.”
MTN had recommended that “all spectrum lots available in the 3.5GHz be awarded using a Simultaneous Multi-Round Ascending clock auction format with different start dates which reflect the time required to ensure that the spectrum can be cleared.”
In the alternative, MTN wants NCC to “provide a commitment to retain the same Reserve Price and licence conditions for any subsequent auction of spectrum in the 3.5 GHz band in order to reduce the Substitution Risk.”
According to MTN Nigeria, “there is a need to obviate substitution risk which may arise from the award of the entire 3.5 GHz band through the form of a sequential series of auctions. Substitution risk is the risk that a bidder acquires a specific spectrum lot for a given price when it would have preferred to have acquired a substitute spectrum lot at a lower price.”
To mitigate the risk cited by MTN Nigeria, NCC says that while it is going ahead with next month’s sale of two licence lots, it “will maintain the Auction Price of this auction as a minimum to be applied when the remaining slots are available and cleared of encumbrances.”
Another way to allow operators maximise their investment in the spectrum is for the telecoms regulator to review the 10-year licence tenure, as MTN reckons that “given the current low level of 5G device diffusion within the 3.5 GHz band, the currently proposed duration is too short to allow operators to create positive value from the spectrum.”
MTN says that its recommended 20-year licence “balances the desire to promote efficiency with the objective of encouraging investment and maximizing the benefits of the resulting mobile services to consumers. It will also lead to higher spectrum values and auction receipts.”
NCC disagrees, maintaining that the licence tenure remains 10 years but says that “auction winners that intend to pay for a tenure of 15 years will be allowed provided that the additional 5 years shall also be paid at the prorated auction price.”
Still, on the price, MTN recommended the adoption of staggered payment terms to encourage participation asking NCC to apply the terms “to all bid winners without discrimination.”
Under the staggered payment recommended by MTN Nigeria, the mobile operator says that bid winners be allowed to pay 50% of the total amount paid in clear funds within one month of the announcement of winning bidders. The balance will be paid over five years in equal annual instalments without the imposition of interest charges, according to the operator which notes that taking “into account the impact of COVID 19, we will recommend allowing a two year payment holiday before the commencement of balance payments.”
Responding to MTN Nigeria’s recommendation, NCC says that “staggered payment is not acceptable.”
Airtel Nigeria, which shares a similar concern as fellow MNO, MTN Nigeria, says the NCC “needs to clarify how it arrived at the reserve price of USD 197, 400,000 or its equivalent at the time of the auction.”
Airtel Nigeria sought to know the methodology used by NCC to determine the reserve price and also sought clarity “on the prevailing exchange rate at the date of the IBD or auction payments on whether it is the ‘buy rate’ or the ‘sell rate’ on that date.”
According to Airtel Nigeria, NCC should reduce the reserve price “to align with current economic realities and ensure that successful bidders have adequate financial resources to meet the stipulated rollout obligations.”
Responding to the exchange rate clarification by Airtel Nigeria, NCC says that “Airtel should note that the exchange rate is the prevailing ‘Selling Rate’ on the date of the transaction.”
According to Airtel Nigeria, NCC should make more licence slots available for auction as only two lots “of 100MHz TDD spectrum in the 3.5GHz band ranging from 3500 – 3600MHz and 3700 – 3800MHz is available for auction”, a development that means that “there will be only two winners” at the forthcoming Nigeria 5G auction next month in Abuja.
In the alternative, Airtel Nigeria sought to know when the other three slots will become available after the two available slots are auctioned as such regulatory “clarity on availability of the remaining slots will help stakeholders in their forecasting and planning.”
But the NCC which says that other licence lots “are encumbered” says it “estimates that the clearance process will take a minimum of twenty-four months. Hence they will only be made available after the stated clearing.”