Pricing impasse

It is vital to revise the reserve price for 5G spectrum

The Telecom Regulatory Authority of India (Trai), by rejecting the suggestion of the Digital Communications Commission (DCC) to reduce the reserve price for 5G spectrum, has overlooked the financial stress in the sector. Reiterating the stand taken in its recommendation of August 2018, Trai has suggested that the 3,300-3,600 MHz band meant for 5G spectrum be auctioned at Rs 492 crore per MHz. While it’s up to the DCC (formerly known as the Telecom Commission) to take a call now, history shows it has never revised the price downward from what has been recommended by Trai.

On the contrary, in several instances earlier, the Telecom Commission has only revised upwards the prices recommended by Trai. For instance, in 2015, the Telecom Commission had sent back the Trai recommendations on 3G spectrum pricing at Rs 2,720 crore per MHz for reconsideration because it was considered low. While Trai stuck to its stand, the Telecom Commission approved a 36 per cent higher base price of Rs 3,705 crore per MHz. Also, Trai itself has revised downwards its own recommended reserve price for high-value 700 MHz spectrum that had gone unsold in the previous auction. 

This time around, the DCC, despite Telecom Minister Ravi Shankar Prasad admitting stress in the industry, could well play safe by not going against Trai in spectrum pricing, fearing a scrutiny by the Comptroller and Auditor General of India (CAG) over loss to the exchequer, as was the case during the 2G spectrum allocation under the United Progressive Alliance rule. At the current reserve price, across multiple frequency bands including 5G, recommended by Trai, the government could mop up around Rs 5.83 trillion ($83.8 billion).

However, the DCC should realise that these are unusual times. With the telecom industry saddled with Rs 4.3 trillion of debt, the health of the sector should be a key consideration for the government while aiming for technological progress through 5G services. All telecom firms, including Reliance Jio, are unanimous that the spectrum prices are too high. Bharti Airtel has said it will not participate in an auction held at these prices, while Vodafone Idea has suggested the 5G auction take place in 2020. It’s important for India to not miss the 5G bus when countries around the world are going headlong, but it should not be at the cost of the telcos.

So, the government should step out of its safe zone, and revise the reserve price downwards for 5G spectrum to be sold in an auction later this year. The second-best option for the government would be to work out a payment mechanism that’s less strenuous for the companies. A lower down-payment and easier tranches could hold an answer, as reported in this newspaper. But, such a measure will only give a partial relief to the industry. Trai in its latest review has observed that the government’s marketing efforts will have an impact on the auction, adding that no guarantee can be given about the sale of all the spectrum put to auction. That disclaimer from the regulator should embolden the government to step out of convention.