Spectrum Auction Realities

TRAI suggests Rs.2,400-crore plan for two island chains www.ambitionias.com
  • The fine print of the spectrum auction coming up in February, shows that little has been learnt from experience with similar auctions in the past.
  • The 3G auction held in 2010, for example, fetched a windfall for the government but dealt a blow to the telecom industry from which it has yet to fully recover.
  • On that occasion, a limited quantity of spectrum put on auction, a high upset price and keen competition among bidders combined to push up the value beyond levels that made business sense for the telecom companies, that had no choice but to participate.
  • The consequences of that frenzied round of bidding are still being felt in the form of large loan dues of banks that funded the bidding, frayed balance sheets of telecom operators and poor services for consumers as operators cut down investment on network expansion.
  • Not only is the price set for the three bands — 800 MHz, 900 MHz and 1,800 MHz which are considerably higher than what was recommended by the Telecom Regulatory Authority of India (TRAI) but the quantum of spectrum on offer is also limited, especially in the crucial 900 MHz band.
  • At least three operators — Vodafone, Idea and Bharti Airtel — will be bidding to stay in business as their licences in some circles expire this year.
  • Their desperation is bound to push up the bidding price, especially if others such as Uninor and Reliance Jio step into the fray.
  • The government has also offered just one slot of 5 MHz in the 2,100 MHz band which is critical for 3G operations and has said that it will release a further 15 MHz later.
  • The strategy is obviously to capitalise on the scarcity value now.
  • While optimising revenues for a public asset such as spectrum is not wrong, the attempt here seems to be to maximise them — which can come only at the cost of the industry and consumers.
  • The government should strive to put on auction the entire 20 MHz that it has in the 2,100 MHz band and also fix the upset price at realistic levels.
  • Quite apart from this, serious thought should be given also to the TRAI recommendation to reduce the licence fee from 8 per cent of adjusted gross revenues to 6 per cent as the present fee was set before the auctions era.
  • The government’s keenness to maximise revenues and to prevent windfall gains to telecom operators is understandable
  • But the same should be balanced with the interests of the long-term development of the industry and of the consumers.