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BIG BANG SPECTRUM AUCTION IS A BIG FAILURE

Dr D M Deshpande
The recently concluded Spectrum auction was hailed as a big bang auction but could not succeed leaving a trail of losers including the government. The auction was for 2355 MHz and seven different bands, the biggest and the most complex ever in the Indian context. More than 60% of spectrum on offer remained unsold for which both the government and the TRAI (Telecom Regulatory Authority of India) should be held accountable. The TRAI is guilty of fixing too high a reserve price while the Government will do well to stop looking at spectrum sale from the sole angle of revenues alone and start considering the long term interests of the sector.
The government has budgeted for Rs 56,000 crores from the spectrum sale for this fiscal but it is going to end up with just Rs 32,000 crores, a 43% shortfall. It is indeed a self inflicted blow; the government should not have allowed the TRAI to fix such a high reserve price. Over a period of time, the business dynamics in telecom industry has undergone a huge change. While the Indian market has always been competitive, the entry of high profile Reliance Jio has caused disruption. Even so, not many players have rushed to the auction to accumulate spectrum.
Clearly, high pricing has been the villain. For example, the 700 MHz band, considered to be the most suitable one for offering broadband high speed services failed to attract even a single bidder. The reason being, the player would have had to shell out Rs 57,400 crores as that was the reserve price fixed in the auction; this is more than the total amount budgeted as revenues for the entire fiscal year.
Surely, any player would have only burnt his finger with this type of highly prohibitive reserve price. Though the 700 MHz band is comparable to that of 800 MH band, it was priced at twice the rate of later by the regulator. TRAI did not have any explanation or rationale for this except to say that it went by its own recommendations of 2012!
At that time it was based on the auction experience of rich European countries. Typically, universal access to broadband service was achieved in countries such as Sweden, Germany and Norway. It was more about quality and speed of the service; whereas in India cheap access to broadband is still a distant dream in several parts of the country. A very high reserve price in spectrum auction distorts the entire pricing scenario in the telecom industry. Spectrum does not get exhausted; it can be reused and it multiplies. More the numbers, it will lead to an expanded network with more users. The government, too should be looking at potential of tax revenues that can be generated based on such high numbers.
TRAI also erred in pricing the 900 MHz band. It went by the highest bid of the previous auction not realizing that at that time there were several players whose 20 years licenses were getting expired and they had to, perforce, buy spectrum to keep going! However, this time, there were no such compulsions for several players. Furthermore, now the players have the additional scope of trading and sharing spectrum. Had all this been leveraged in to fixing the reserve prices, this fiasco could well have been avoided.
Finally, access to these spectrum in a way was critical; it would have helped in achieving the targets under the Prime Minister’s digital India program. Even after four years, 3G services cover 120 million subscribers which is just 10% mobile user base. Worse, the quality and the speed is the lowest in the Asia-pacific region. At least in future, the government should avoid making such costly mistake of pricing reserve at very high levels.

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