It is unfortunate that barely a month after the Telecom Regulatory Authority of India (TRAI) had recommended a sharp reduction in the base price for auctioning of spectrum, the Telecom Department should adopt a diametrically opposite view that ignores market realities. An auction for any commodity succeeds only if it attracts enough bidders. The last two spectrum rounds in March and November saw very little participation from telecom firms. In November, a high reserve price for spectrum — 1800 megahertz (MHz) frequency band at Rs 14,000 crore for a 5-MHz pan-India slot — failed to invite a single bid. Even for the few circles that found takers, no bids were made above the official reserve price. The March auctions, too, failed despite the Government slashing the base price by 30 per cent in circles where no one had previously bid.
TRAI’s recommendation that the pan-India reserve price for 1800 MHz spectrum be lowered to Rs 7,480 crore was reasonable. It recognised that the situation today is unlike 2010, when the outlook for the telecom sector seemed rosy (on hindsight, this was misplaced). Firms that were willing to fork out astronomical sums for bagging airwaves then are now sitting on piles of debt. The country cannot afford another failed auction, particularly since the licences issued in 1994 are set to expire next year. The firms that bagged them need spectrum to stay in business and protect investments they made over the last 20 years. This is in the consumers’ interest as well. We fail to appreciate that nobody, including the fiscally strapped Government, gains if high reserve prices deter these firms from participating in the next auction, which should be held at the earliest.
The Telecom Department has claimed that the lower base price recommended by TRAI does not capture the ‘true’ value of spectrum, as it ignores the long-term growth potential of the sector. The argument is misplaced because the main objective of fixing a reserve price is to induce the maximum number of participants in auctions. The actual value of spectrum is something that only the market can discover through a transparent and competitive bidding process. The Government allowed such discovery to take place while auctioning 3G spectrum in 2010, when it pegged the reserve price at a level that attracted a large number of bidders and eventually fetched an amount almost five times above it. Now, we are back to the tired old formula of attempting to force a high reserve price on bidders and risk another non-auction.