Artificial scarcity in telecom

Revenue-centric approach to spectrum must end

The telecom industry has expressed the fear that by placing only five MHz of spectrum for auction in the 2,100-MHz band, the department of telecommunications, or DoT, will trigger a bidding war. The frequency is used for transmitting high-speed data, which is the next big opportunity every telecom service provider is eyeing. As spectrum is to be auctioned in lots of five MHz in February, this means only one slot is up for grabs. Companies will bid aggressively, like they did for third-generation, or 3G, spectrum some years back; that will put a huge financial burden on all of them. The sector is still reeling under the impact of that auction and of the low tariffs induced by the new licences handed out in 2008 by the United Progressive Alliance government. Another round of expensive auction will set it back by a few years, the industry fears. The decision to place only five MHz for auction is also against the observation of the Telecom Regulatory Authority of India, or Trai, that more slots need to be auctioned if the target of Digital India has to be achieved.

However, as reported in this newspaper, the armed forces have agreed to release another 15 MHz in the 2,100-MHz band, which the DoT plans to auction either later this year or early next year. This should curb the anxiety of the telecom service providers. Those who lose out in the current round can pick up spectrum in the next round. This could keep the February auctions from going to ridiculously high price levels. The only hitch is that the business plans of those who do not get spectrum now will get delayed by a year or so. There is some merit in Trai's suggestion that the DoT can auction the additional spectrum now and allocate it whenever the armed forces hand it over. This will cut the red tape and result in a speedy allocation of the airwaves. The DoT, in turn, feels that it cannot auction what it doesn't own.

What is certain is that the February auction is driven by the revenue shortfall the government estimates this year - over Rs 1 lakh crore, on its own admission - that has made its fiscal deficit target of 4.1 per cent of gross domestic product, or GDP, very difficult to achieve. With disinvestment proceeds too expected to be significantly below the target, it is looking at every possible avenue to raise money. This is where the spectrum auction fits in. The government expects the auction to fetch it Rs 1 lakh crore over four years, which will help in reining in the deficit. But that is not the right way to go about it: revenue cannot be the sole consideration for spectrum auction. The government has to see that the industry does not become a victim of its revenue-maximisation exercise and falls into bad times. Telecommunication services have had a transformative impact on the country. New possibilities for digital delivery of services are opening up, especially to the weaker sections of the society. A revenue-centric approach is not advisable.