Misjudging the market

The results of the latest round of spectrum auctions have exposed the flawed assumptions underlying the pricing of spectrum. With the auction turning out to be a damp squib — more than 60 per cent remained unsold — both the Centre and the sector regulator, the Telecom Regulatory Authority of India (TRAI), need to revisit the issue afresh, taking into account the changed market dynamics. While TRAI has to be held responsible for the lacklustre response as it fixed prohibitively high reserve prices, the Centre, too, needs to stop looking at spectrum auctions merely as a revenue-raising tool, and consider the long-term interests of the sector.

Pricing was clearly the villain. It is astonishing that the 700 MHz band, considered to be the most ideal frequency for offering high-speed broadband services, failed to attract even a single bid due to the prohibitive reserve price fixed by TRAI. A single operator would have had to cough up a minimum of ₹57,400 crore to buy airwaves in this band, which would have made it unviable as a business proposition in India’s hyper competitive telecom market, which has been further disrupted by the recent entry of Reliance Jio. Though the 700 MHz band is comparable to the 800 MHz band in terms of efficiency, the regulator had priced the former at nearly twice the reserve price of the latter. TRAI did not offer any rationale for this, except to admit that it had no better approach than to go by its own recommendations made in 2012. Back then, the pricing had been based on the outcome of auctions held in developed European countries, including Germany, Sweden and Norway, where universal access to broadband had already been achieved and the focus had shifted to quality and speed of connectivity. Using those parameters for India, where access to cheap broadband is still a distant dream, was clearly not justified. TRAI also faltered while pricing the 900 MHz band by relying on the final bid price arrived at in the previous auction, forgetting that last year, operators had been forced to bid high for chunks of 5MHz bandwidth in this frequency band, particularly as several were facing expiry of their previously acquired 20-year licences. This year there was no such compulsion. Worse, there were also no contiguous 5 MHz chunks available. Further, telecom companies also now have other options to acquire spectrum, including trading and sharing. As a result, there were no takers for the 900 MHz band, which is one of the best frequencies for 3G services.

Access to these spectrum bands would have enabled Indian telecom operators to achieve the objectives of Prime Minister Narendra Modi’s Digital India campaign. Four years after the launch of 3G services, there are just about 120 million 3G subscribers, barely 10 per cent of the total mobile user-base. Even here, the quality of access leaves much to be desired with the average connection speed the lowest in the Asia-Pacific region. Both the Centre and TRAI need to keep this reality in mind while fixing the reserve price for future auctions.

COMMENT NOW