Is TRAI’s call on spectrum pricing acceptable? - YES

We need a successful spectrum auction in the interest of all stakeholders. We have had two recently failed or, at best, partly successful auctions.

Rational analysis --- unimpeded by the fear psychosis of the recent past --- is what is needed to break this repeated failure. This is precisely what has been attempted and is clearly reflected in the TRAI recommendations of September 9 on spectrum pricing and valuation.

The recent print media reports suggest that the base price recommendations of TRAI have not been considered acceptable by a DoT panel.

There are two things that we have to realise ab initio . One that the base price is a mere theoretical minimum limit to start an auction and safeguard revenue and, two, that there is no mathematical formula available which can precisely determine the base price.

Base price is linked to the prevailing economic climate, the sector’s financial health, assessed future scope and a myriad other factors whose influence can only be heuristically assessed.

Any methodology used has to be based on certain assumptions that can always be questioned or supported with tens of arguments. While the exact basis on which DoT seems to have rejected the TRAI-recommended base price is not known, the DoT should be aware that no matter who determines the base price and what methodology is used, it can never be precise, nor is it meant to be precise.

In a meaningful and successful auction, when a commodity is put up for sale, the base price will be pierced by many bidders and the market-determined price will finally prevail. Further, a well-designed auction under suitable and well-defined regulatory conditions, can always prevent even a remote chance of cartelisation.

Setting a high base price based on irrational fears of cartelisation can never result in a successful auction. In fact, high base price encourages cartelisation. There is no fundamental flaw in TRAI’s base price calculation (there can only be minor differences of opinion) and, therefore, it should be accepted.

Spectrum Usage Charge is another issue which needs rationalisation. The purpose of this SUC has to be understood clearly before determining the rates.

When administrative assignment of spectrum was the norm, SUC was introduced to realise some component of the price of spectrum. Its structure of graded rising value was to discourage hoarding and increase spectrum usage efficiency.

These factors do not apply in an auctioned open market acquisition of spectrum. Therefore, TRAI’s suggestion of reduced flat rate charge for auctioned spectrum is eminently suitable.

(The author is former Member, TRAI, and former Chairman, BSNL.)

Read also: Is TRAI’s call on spectrum pricing acceptable? - NO

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