Pricing rationale

5G can take India to another level

The telecom regulator’s latest recommendation on 5G spectrum auction is in sync with the steps taken by the government recently to ensure the sector’s revival. By suggesting around a 36 per cent reduction in the base price for the 3.3 to 3.6 GHz spectrum band catering to 5G services and 40 per cent for the premium 700 MHz band, the Telecom Regulatory Authority of India (Trai) has responded to a loud call for change. Trai’s recommendation of 2018, pegging the mid-band 5G reserve price at Rs 492 crore a unit, was termed exorbitantly high by various stakeholders. In the backdrop of a financially stressed telecom sector, the Trai recommendation to cut the base price of 5G spectrum to Rs 317 crore a unit is a welcome move, though telecom firms had asked for more. Since it is up to the Department of Telecommunications (DoT) to consider the recommendation before it is sent to the Union Cabinet, there is room for further correction if international prices are any benchmark. In countries such as South Korea, Spain, Italy, and the UK, the 5G band was auctioned at a much lower average price of Rs 85-90 crore per MHz.

 
There are several reasons why the government should opt for realistic prices. First, the industry should not be made to bleed yet again like it did during the over-priced 3G spectrum auction more than a decade ago. Second, much of the spectrum, if over-priced, may go unsold like in the case of two previous auctions. This will hurt not only the telecom industry but also many critical sectors likely to benefit from 5G. Third, effective spectrum pricing based on a sound rationale is a prerequisite to ensure that this valuable resource is utilised in an optimal manner to serve the public interest in the best possible manner, as a Trai consultation paper pointed out recently. For the biggest spectrum sale so far to be a success, effective pricing will be critical. This could be a game changer for the mega auction — with Rs 2-3 trillion worth of airwaves up for bidding — expected in about two months.

 
At a broader level, the government made the right start last year by offering a package to the sector. In September 2021, it approved a set of reforms to address the liquidity requirements of the sector, especially Vodafone Idea, which was on the verge of collapse. The relief package included a four-year moratorium on the payment of dues linked to the adjusted gross revenue. Soon after telcos took the initiative to raise tariffs, which are still among the lowest in the world. The monthly average revenue per user for the industry is in the range of Rs 115-160, and must go up for it to return to health. A realistic 5G reserve price will go a long way in helping a disrupted industry to get back its place in the world pecking order. As the Trai spectrum auction recommendation states, telecom has been recognised as an important tool for socio-economic development and modernisation in various sectors. Spectrum is one of the most crucial ingredients for that. According to Trai, the mobile data usage has increased from 462 petabytes in the quarter ended September 2016 to 34,608 petabytes in the quarter ended December 2021 — a 75-fold increase with the uptick of 4G services, making India one of the highest data-user countries. 5G will take India to another level.