The initial response to the latest round of spectrum auctions, with the Centre collecting a neat ₹20,436 crore as earnest money deposits from interested bidders, is bound to warm the cockles of finance minister Arun Jaitley’s heart. Coming as it does at a time he is struggling to meet the fiscal deficit target for the year, the prospect of raking in over ₹1 lakh crore through the auctions must appear like manna from heaven. However, the fierce competition for spectrum, signalled by the scale of the deposits, is likely to be bad news for Prime Minister Narendra Modi’s vision of a ‘digital India’, where every village panchayat in the country is connected by broadband internet and every citizen can access services ranging from agriculture to education. While money can solve the physical connectivity issue — the Centre plans to spend ₹1,19,000 crore over five years to bring this about — the high cost of spectrum is likely to raise questions about affordability of services, especially since a large proportion of users are likely to access the internet through mobile devices.
The spectacular transformation in the telecommunications landscape has been brought about largely through a sharp fall in telephony costs, driven by competition among service providers. Bigger volumes helped drive device costs down; so much so that India’s gross mobile subscriber base today stands at over 900 million, of which over 790 million are active. Meanwhile, call costs have fallen from around ₹14 per minute in 1998 to under 50 paise per minute. Although rising spectrum costs are pushing call costs upwards, the real challenge lies in the cost of using data, not voice services. India’s mobile data market has witnessed explosive growth, with mobile data consumption growing by 74 per cent in 2014, primarily driven by 3G data. With the base of 3G-capable devices rising to 54 per cent of total devices, and with 3G customers consuming three times the data of 2G customers, the market preference for quality, high-speed data connectivity is clear.
Providing such connectivity can transform the economy and drive growth just like the initial mobile revolution did a decade ago. But the full potential of the digital revolution can be realised only if accessibility is matched by affordability — impossible, if spectrum costs keep getting pushed higher. Combined with other policy roadblocks — for example, telecom companies being barred from trading in spectrum and working out intra-circle arrangements for data roaming — these end up hurting the consumer. The failure to evolve a mergers and acquisitions policy for the sector and release adequate spectrum for sale threatens the existence of several players and the fate of millions of subscribers. Auctioning spectrum is the most efficient way of allocating a scare resource — in theory, with perfect competition and unrestricted entry and exit at play. Since reality is different, the Centre needs to urgently re-examine the welfare impact of high spectrum prices.