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. The story for the
upcoming round is the same as the government attempts to exploit
scarcity value to maximise its own revenues. Not only is the price set
for the three bands — 800 MHz, 900 MHz and 1,800 MHz — 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, as
experience shows. There is time still to change things as the Cabinet
will be meeting soon to clear the pricing of the 2,100 MHz band. 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 it
should be balanced with the interests of the long-term development of
the industry and of the consumers.
