Wrong call on spectrum

The govt should look at re-auctioning unsold air waves

No matter which metric one uses, the recently concluded telecom spectrum auctions have been a failure. The auctions never really took off on any of the five days and ended up selling just 40 per cent (965 MHz) of the spectrum on offer. Only seven of the 11 telecom operators actually took part in the bidding process. Here, too, Vodafone, which was the most aggressive, could do so after a Rs 47,700-crore capital infusion by its parent company. Moreover, all the operators were selective and only sought to pick up the minimum spectrum necessary to set up and maintain their 4G footprint. The focus was only on the 1,800 MHz, 2,300 MHz and 2,500 MHz bands, which can all be used for 4G services. Not surprisingly, the government ended up massively undershooting its revenue targets. As against the base price of Rs 5.66 lakh crore for the entire spectrum, the government received bids for just Rs 65,789 crore - a measly 11.5 per cent. Not only is it a tiny fraction of the expected amount, it is also just half the Rs 1.1 lakh crore bids that were received during the 2015 auctions. So what went wrong?

Several reasons are being trotted out for the tepid response, but one crucial factor is the government's refusal to acknowledge that high reserve prices are counterproductive. One possible reason could be the fear that low reserve prices would be perceived as a favour to industry, and would attract Comptroller and Auditor General's attention. Also, the telecom industry in India has been struggling, with gross industry debt at Rs 3.8 lakh crore, considerably more than annual revenues. With over 950 million subscribers, growth has flattened and the competition is stiff. Further, the entry of Reliance Jio has not only made things tougher for all but also changed the game with its emphasis on data. Most operators, already stressed by large amounts of debt on their books, are getting ready for a price war. Under the circumstances, no operator had the cash to fan out. The situation was made worse by the government setting rather ambitious targets for itself. The base price for spectrum - especially for the 700 MHz band, which had a price tag of Rs 4 lakh crore - was highly optimistic. Compare this to the gross revenues of the mobile industry that are pegged at Rs 2.5 lakh crore per annum. It is irrational to expect bids for Rs 5.6 lakh crore, which is more than twice the annual revenue of the industry.

Failed auctions such as these are not without consequences. For one, low revenue realisations will have an impact on the 2016-17 Budget estimates. This financial year, the government will get only Rs 32,000 crore of the Rs 56,000 crore it had targeted from the auctions, a 43 per cent shortfall. Moreover, thanks to the pricing, there was no bidding for the 700 MHz band (which is the most efficient in terms of 4G service delivery and ideal for rolling out rural services) and the 900 MHz band. This, in turn, will not only impede rural telephony but also limit any further improvement in data speeds and quality of service in general. Fast, inexpensive, high-quality data services can energise the economy, be it initiatives such as Digital India and Smart Cities or the delivery of government services and e-commerce. A case can surely be made for setting base prices lower, and re-auctioning, given the obvious benefits of an efficient telecom sector. It's a welcome sign that Telecom Minister Manoj Sinha hinted as much during a media interaction on Friday.