Urgent need to revise 'out of line' spectrum pricing practices: BIF

The Broadband India Forum (BIF) has pitched for reviewing the spectrum auction rules for reserve prices, saying the current framework is "out-of-line" with international norms.

The industry think-tank said where only limited data is available in the Indian context -- a case in point being the upcoming 5G spectrum auctions -- it recommends the use of international benchmarks, suitably adjusted (that is Average Revenue Per User adjusted) for the domestic market.

"In the case of India, evidence highlighted in this report reveals the clear and present need to review the auction rules for reserve prices. We find the current reserve price determination framework to be out-of-line with international norms and show it to be a primary cause for the non-discovery of market prices in recent auctions," BIF said in a report.

BIF, in the report titled 'Spectrum Pricing in India', said it would be advantageous for the country to revisit the methodology followed and make suitable revisions.

Stating that there is an urgent need to revise the spectrum pricing practices fraught with legacy issues, the report pointed out that the matter should be addressed urgently as high radio spectrum prices are to the extreme detriment of the lower income sections of society.

Auctions can be deemed successful only when a large amount of the total spectrum put up for auction is sold, and the clearing price is significantly higher than the reserve price, it said.

"There appear to be significant difficulties, challenges and inaccuracies posed as a result of the current methodology for valuing spectrum in India," it said.

Reserve prices need to be set at levels that are high enough to keep non-serious bidders at bay, yet low enough to achieve vibrant price discovery.

BIF said among the many approaches used for valuing radio spectrum, it finds the revenue surplus approach to be most suitable for and analogous to the current conditions. Hence, it is a more appropriate method for price determination given the Indian market and its structure, it said.

It argued that last auction determined market price of any product is not relevant as a basis of reserve price in subsequent auction.

"We also demonstrate that the current methodology of calculating reserve prices is unreasonable as it does not rely much on a fresh valuation of spectrum," it said.

The report highlighted that reserve prices can be referenced back to winning bids from prior auctions only if the auction was held no more than a year ago, and in all other cases, must be valued afresh to consider prevailing market conditions.

"It is our finding that mere price adjustments would not suffice to address spectrum management concerns in India and a comprehensive review of spectrum pricing and valuation fundamentals is recommended," it said.