Every entry needs an exit

The Telecom Regulatory Authority of India’s (TRAI) recommendations for spectrum trading should hopefully receive the Government’s go-ahead at the earliest. The release of the draft guidelines is well-timed, coming just ahead of the next spectrum auction, scheduled to begin on February 3. Currently, telecom firms have no viable mechanism to exit the sector, by either surrendering spectrum to the Government and claiming refund of their auction monies, or by selling spectrum to other operators. This prospect of being locked-in and suffering the ‘winner’s curse’ in the event of their bids proving far too aggressive in hindsight has, in turn, discouraged participation in auctions. By allowing spectrum trading, the chances of more players taking part goes up, as they can now bid with the knowledge of being able sell airwaves to other operators. And if the spectrum is valued higher in the secondary market than the original auction price, there is no ‘winner’s curse’ either.

A secondary market for airwaves is equally important from the buyer’s standpoint. A Bharti or Vodafone today does not own more than 30 mega-hertz (MHz) of spectrum across all frequency bands in any circle. Contrast this to the 100 MHz available with Verizon in the US or the 130 MHz allocated to China Mobile for just high-speed 4G data service applications such as mobile healthcare and video entertainment. While the National Telecom Policy has set a target of delivering broadband services at minimum 2 megabits/second speeds to 600 million subscribers by 2020 – as against the existing 200 million-odd who download at not even 256 kilobits/second average rates – it cannot be achieved without our operators having access to adequate spectrum. One way to facilitate this is by creating a secondary market, so that those wanting additional spectrum can buy from operators holding these in excess of their requirements.

Some of TRAI’s recommendations, such as permitting only spectrum originally allocated through auctions to be traded or not allowing airwaves once bought to be resold for at least two years, may seem restrictive at first glance. But they make sense if the idea is to promote efficient usage of a scarce natural resource. A two-year lock-in is essentially meant to discourage non-serious players interested in acquiring spectrum only to make trading gains. Likewise, it is only fair to prevent operators who obtained spectrum at below market price through an administered process from making windfall profits; they should be given the right to trade in these airwaves only after paying a one-time charge covering the difference. Equally sensible is the proposal to make spectrum trading conditional upon an outright transfer of usage rights. A buyer in this case will, then, have to also assume the roll-out obligations associated with ownership of the spectrum block. This, again, is only intended to promote efficient spectrum usage.

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