Editorial

Wrong call

| Updated on January 07, 2021 Published on January 07, 2021

Telecom players in the past have felt that the reserve price fixed by the Centre was exorbitant   -  Prashant Nakwe

The Centre’s high reserve price for the next spectrum auctions is a repeat of past mistakes

Spectrum auctions conducted by the Centre since 2010 have been largely unsuccessful due to the high reserve price fixed by the telecom regulator. Except for 2015, when airwaves worth ₹1-lakh crore were sold, other auctions have been a damp squib as telecom operators have found the pricing exorbitant. In this context, the decision by the Centre to hold the next round of spectrum auction in March without lowering the reserve price does not augur well for the debt-laden telecom sector. Policymakers seem to have not learnt any lessons from the previous rounds of spectrum sale. For example, the auction held in 2016 had ended in a whimper with the Centre receiving bids worth only ₹65,789 crore. The Department of Telecom had invited bids for over 2000 MHz spectrum worth ₹5.3-lakh crore. Nearly 60 per cent of the airwaves put on the block did not find any takers. There was not a single bid for the 700 MHz band, ideal for 4G services, due to the high reserve price. Similarly, in 2012, 1800 MHz and 800 MHz bands were put up for sale, but only a small percentage of 1800 MHz band was sold, while 800 MHz remained completely unsold. This unsold spectrum and additional spectrum in the 900 MHz band were auctioned in 2013. Since pricing had not changed significantly, the response continued to remain tepid.

In the 2014 auction, spectrum prices for the 900 MHz and 1800 MHz bands in the metros were much higher than international averages. The price per MHz per population in the 1800 MHz band was €1.46 compared to the benchmark of €0.17–0.27 declared by Ofcom in 2012 (ICRIER report). Though the final reserve price for 800 MHz spectrum in the upcoming auction is 18.5 per cent lower than the 2016 price, the price for 1800 MHz and 2300 MHz is 14.5 per cent and 17.5 per cent higher, respectively. While 700 MHz spectrum price has been cut by 43 per cent, it remains very expensive as an operator would need to spend nearly ₹65,000 crore to own 10 MHz of spectrum pan-India. With a collective debt pile of nearly ₹5- lakh crore, none of the existing operators is in a position to place such an expensive bet. The industry’s revenue and profitability have been worsening due to the heightened competition, and payouts related to Adjusted Gross Revenue.

In 2019, the Department of Telecom had said that the demand for spectrum is likely to be subdued due to consolidation in the market with just three players remaining. Therefore, the objective should be to sell all the spectrum which is put up for auction. An expensive auction could put pressure on telecom operators to either increase tariffs or halt investments in new infrastructure. This can halt India’s digital transformation efforts.

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Published on January 07, 2021
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