Auction spectrum bands at one go

It appears from press reports that there is in-principle agreement between the Department of Defence and Department of Telecommunications to coordinate and release additional spectrum for commercial mobile services. This mainly includes release of spectrum up to 2×15 MHz in 2100 MHz band in lieu of 15 MHz in 1900 MHz. Apparently, only some procedural clearances are awaited. If there are no physical constraints such as vacating some users in the above spectrum space, then an agreement should not be far away.

This is significant in view of the proposed auction of spectrum in February 2015. TRAI has been firm that the forthcoming auction should be scheduled only when enough spectrum is made available. It is not the actual release of spectrum that matters; it is the agreement to release, accompanied by a pragmatic and credible timeline for the release of the spectrum that is necessary.

If the Prime Minister and the government intend to usher in Telecom 2.0 for India to provide on-demand broadband services to all its citizens, it is essential that an agreement to release the said 2100 MHz spectrum be inked and the entire 15 MHz along with the 5 MHz already held by DoT be put on block for auction along with 800, 900 and 1800 MHz spectrums that become available on licence expiry in late 2015. There are examples of governments holding auction without having spectrum on hand; but with a set timeline for releasing the same.

For example, the 700 MHz digital dividend spectrum auction (Auction 73) in the US took place in January 2008 with a timeline set to February 17, 2009, to release spectrum by switching over from analog to digital broadcast transmission.

The switchover in fact happened only on June 12, 2009, and subsequently the spectrum was released to auction winners. In the auction of 2100 MHz held during April-May, 2010 in India, the notice inviting applications clearly stated that the licensees though assigned are allowed to utilise the spectrum for commercial operations only from September 1, 2010.

TRAI recommendations rightly insist that auctions in the 800 MHz, 900 MHz, 1800 MHz and 2100 MHz band be conducted simultaneously. There is a significant amount of literature in auction theory warning against the risks of sequential auctions of related goods (in this case spectrum across bands).

Sequential sale limits information available to bidders and the manner in which they can respond to information. Bidders must guess what prices will be in future auctions when determining bids in the current auction.

Incorrect guesses may result in an inefficient assignment. A sequential auction also eliminates many strategies. For example, a bidder cannot switch back to an earlier item if prices go too high in a later auction. Bidders may regret having purchased early at high prices, or not having purchased early at low prices. The guesswork about future auction outcomes makes strategies in sequential auctions complex, and the outcomes less efficient.

The Swiss wireless-local loop auction conducted in March 2000 illustrated the difficulties of sequential sale where the third sale for a larger spectrum block went for a very low price compared to the earlier sales. The simultaneous ascending multi-band German auction in 2010 provided enough competition, and revenues generated for the government were close to ex ante expectations.

Thus if an auction is held mainly for in-use spectrum in 900 and 1800 MHz that is expiring at the end of next year, it will certainly be damaging not only to the industry, but also for consumers in the long run.

The agreement for the swap proposal should be done by the end of 2014; 2×20 MHz of 2100 MHz should be put on block along with 800, 900 and 1800 MHz with a specified timeline for release; and a simultaneous auction held across all bands.

Sridhar and Prasad are professors at the International Institute of Information Technology Bangalore and the Management Development Institute, Gurgaon, respectively

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