Opinion

Spectrum auctions: History set to repeat itself

TV Ramachandran | Updated on January 18, 2021

The auctions to be held in March are likely to be a failure as the high reserve prices are a chokehold on India’s digital future

Telecom experts believe that the upcoming March spectrum auctions will yield sub-optimal results like their predecessors. Previously, auctions since 2010 could sell, on an average, only 60 per cent of the spectrum put up; the last auction sold only 40 per cent.

If an auctioned good is a luxury item one needn’t worry. But, in this digital era, spectrum is an essential and a “key natural resource”, so urgent reform is needed. Experts predict highly muted participation yet again due to unrealistic reserve prices (RP). While losses to the government and Telcos are more apparent, they actually pale in comparison to the body blow to India's economic growth, and to end users. It is time to cut and reset.

Starting March 1, the DoT plans to auction spectrum in the following bands: 700, 800, 900, 1800, 2100, 2300, and 2500 MHz. RP is fixed at ₹3.92 lakh crore. Top players have already declared that the RP is too high. There are very few players in the Indian telecom market and most are buckling under heavy debt. To manage cash flow, top players are expected to bid very little, or not at all. Once again, the country could face the repercussions of repeated auction failure with large amounts of idle spectrum, the biggest losers being the unconnected and underserved..

India’s spectrum prices are one of the highest globally, and tariffs are one of the lowest. Telecom players are powerless to invest in badly-needed infrastructure. An alternative is to buy very high-priced spectrum and raise tariffs. But this is not viable for the cost-conscious Indian market. Obviously, both general quality of service and connectivity to unserved and underserved areas are badly hit.

Demand for wired and wireless broadband hit an all-time high during the pandemic. Those who didn’t have access to quality broadband services were severely hit. Everyone benefits only when Telcos can invest in vital infrastructure and provide coverage everywhere.

 

Access to requisite amounts of spectrum results in high socio-economic growth. Studies by ICRIER have shown that a 10 per cent increase in mobile internet traffic results in a 1.3 per cent increase in India’s GDP. We cannot use clearing prices from previous auctions as a starting point to calculate the next RP. This is particularly true when the final clearing price is close to, or equal to, the RP – like in past Indian spectrum auctions. For telecom players, this is like barely managing to climb the first stair in a staircase and then discovering the next stair is double or triple the height of the previous one! In the 2016 auction, 60 per cent of the spectrum auctioned remained unsold and lay idle. In the 2010 auction, market forces were very different. Having many licensed players drove up the bidding, so this cannot be a benchmark for future auctions.

There is nothing wrong with Simultaneous Ascending Auction. However, several rules governing the auction are ‘legacy developments’.

In contrast, the UK had 100 per cent of their spectrum sold. The UK government benefited from reasonable RPs and achieved a high clearing price, proving that optimal RP is the best indicator of an auction's success.

The Reserve Price should be a percentage of the spectrum valuation number. There are several methods of valuation, each with its own merits and demerits. TRAI uses four different methods and takes the mean of these for final valuation number. This could well be continued except that the weighted mean is more appropriate than the arithmetic mean followed by TRAI. Moreover, the Revenue Surplus method is, as per experts, more suited to Indian conditions.

Importantly, the set RP should be a low enough value to promote vibrant discovery of the market value of spectrum but be high enough to deter frivolous participants. For India, a suitable value could be 50-60 per cent, instead of the current high value of 80 per cent. Spectrum being the lifeblood of digital connectivity, it is vital to immediately release the chokehold on competitive price discovery.

The writer is President of Broadband India Forum. Views are personal.

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Published on January 17, 2021
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