The Government should leave spectrum price discovery to the market rather than impose a reserve price from above.
After a botched telecom spectrum auction in November, realising not even a fourth of the Rs 40,000 crore that had been targeted, the Government is anxiously seeking to revive bidder interest by lowering the base price. An Empowered Group of Ministers has recommended a 30-50 per cent reduction in the reserve price of spectrum in the 800 megahertz (MHz) frequency band used by CDMA operators. The pan-India price for 5 MHz of these airwaves was set at a minimum Rs 18,100 crore in the November auction, which failed to elicit a single bid. Even for the 1800 MHz GSM spectrum, a base price of Rs 14,000 crore for a contiguous 5 MHz slot resulted in four circles (including Mumbai and Delhi) not receiving any bid at all. All that the Government got was slightly over Rs 9,400 crore from the 18 remaining circles. Since then, it has cut the reserve price for the unsold 1800 MHz spectrum in the four circles by 30 per cent, besides now proposing a lowering of up to 50 per cent for CDMA airwaves.
All this raises basic questions over how the Government fixes a certain minimum price for spectrum one day, only to reduce it substantially within months on finding no takers. Shouldn’t it leave price discovery to the market, rather than trying to fathom it without gauging the financial health or appetite for spectrum among operators today? In this case, the only matrix seemed to have been used for fixing the original reserve price, and then lowering it sharply, is the revenues budgeted from spectrum sales to meet the Government’s fiscal deficit target. This becomes clearer, given that the Government wants the auctions of the unsold 800 MHz and 1800 MHz airwaves – plus of the prized 900 MHz spectrum in three circles, where the existing operators’ licences expire in 2014 – to be completed by March. That would somehow enable it to mop up the targeted Rs 40,000 crore, in line with the overall objective of showing fiscal balance numbers for 2012-13 just enough perhaps to avert a sovereign downgrade.
Fiscal consolidation is, no doubt, important. At the same time, according primacy to revenues or virtually forcing an industry to pay up without any regard to market conditions is a flawed and counterproductive strategy. The Government can draw lessons here from its earlier auction of 3G and broadband wireless access airwaves in 2010, which fetched nearly Rs one lakh crore. While the general bullishness over the Indian telecom sector was certainly a factor, the fact that the base price was kept low – at Rs 3,500 crore for a 5 MHz pan-India licence – also definitely helped then. Today, it’s the opposite. Interest in the sector stands considerably diminished; yet the Government is keen on discovering a high enough reserve price through a messy trial and error process that damages its credibility.