Taking telecom to the stage where high-speed data, rather than voice, drive traffic will spur demand for spectrum.

The Planning Commission Deputy Chairman, Montek Singh Ahluwalia’s suggestion for allowing the creation of a secondary market for telecom airwaves is deserving of implementation, given the changing dynamics of the industry. To start with, spectrum is not as valuable a natural resource as it seemed till about two years ago, when telecom was a ‘hot’ sector and there was a wild scramble for whatever frequency slots that were on offer in Government auctions. The last two rounds in November and March, by contrast, have seen very little interest, with just about a quarter of the auctioned airwaves being sold, that too at the base price set by the Government. Ahluwalia is not off the mark in noting that making spectrum a tradable resource may spur some interest at the auctions, because those who bid would do so in the knowledge that they can always sell or lease them out to others. That is far from the case now, with operators suffering a ‘winner’s curse’ – of not being able to effectively monetise spectrum bagged earlier at a huge cost.

But reviving interest in Government auctions is not the sole reason why spectrum tradability is desirable. In fact, a situation of comfortable supply in the secondary market could actually result in turning investors temporarily away from bidding in the primary spectrum auctions! What a vibrant secondary market does, however, is to promote a more efficient use of the resource. An operator with surplus spectrum can make it available to somebody else for a price, till such time his own network is being rolled out. The price discovered through such trading can, in turn, form the basis for fixing the Government’s own ‘reserve price’ at auctions. The market-discovered price can even emerge as a true barometer of the industry’s health, by reflecting the demand for spectrum among operators at a given point in time. Had the Government allowed a market for buying and selling of spectrum to develop, it wouldn’t have made the mistake of setting base prices in recent auctions based on what was discovered in 2010 under completely different circumstances.

In the final analysis, fresh demand for spectrum can come about only when the telecom industry itself graduates to the next stage of evolution, where high-speed data transfers rather than voice drives traffic. Having minimum download speeds of 2 Mbps, as opposed to the current standards of 256 Kbps, is contingent upon operators having access to adequate spectrum. Mobile companies in the US or Japan typically have 30-40 MHz of spectrum, compared with the 5 MHz or so available with Indian operators. With an active secondary market, operators can plan their capital investments through an optimal mix of airwaves between what they may want to ‘own’ and what could be ‘bought’ out. Such assessment can, moreover, be made on a continuous basis, unlike now where capacity creation is a function of official decisions on spectrum auctions.

(This article was published on April 8, 2013)
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