‘Seek TRAI views; Govt’s credibility will be impacted if auction fails again’

The Planning Commission has warned that the Government’s credibility will be adversely impacted if the next round of spectrum auction also fails to attract bidders.

The Commission has recommended that instead of arbitrarily reducing the reserve price of spectrum, the Government should seek the views of the Telecom Regulatory Authority for the next round of auction.

Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, in a letter to the Telecom Ministry, has also pitched for allowing spectrum trading to enhance the value of spectrum.

“Since we now have some time to conduct the auction — there is no end-of-fiscal-year compulsion to mobilise revenue — we should try to ensure an ideal outcome. A third failed auction would impact adversely the investment climate and our credibility,” Montek said in a letter sent to the Ministry on April 1.

The letter assumes significance because the Government failed to attract bidders in the two rounds of auctions held in November and March.

While in the March auction there was only one bidder, in November the bidding level was so muted that the spectrum was sold at base price.

Reserve price

The primary reason for the poor response was the high reserve price fixed by the Government. .

Though the Government had fixed the price for 5 Mhz of spectrum in the 1800 Mhz band at Rs 14,000 crore in November, which was lower than the TRAI proposed Rs 18,000 crore, it found no takers.

Another round of auction was held in March where the base price was cut by 30 per cent. This too failed to attract bidders.

Montek said that the reserve prices were fixed based on “arbitrary equivalence ratios” using the outcome of the 3G spectrum auction held in 2010.

“This reserve price was lowered twice but experience shows that the adjustments were insufficient. Market conditions have changed considerably as have business assessments of future prospects,” he said adding that the TRAI should be told to set fresh reserve price.

Higher revenues

On the issue of allowing spectrum trading, Montek said that this will ensure greater economic efficiency which, in turn, will mean higher revenues to the Government.

“I have been raising the issue of tradability on several occasions earlier, and the response from DoT has been that they agreed in principle but that this was not the time. I think we are now at a stage when it is an ideal time,” he said.

DoT note

The Department of Telecom has floated a note for conducting the next round of auction wherein it plans to sell in all available spectrum post the cancellation of 2G licences according to the direction of the Supreme Court.

This note, along with Montek’s proposals, will now be taken up by the Empowered Group of Ministers for a final decision.


(This article was published on April 7, 2013)
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