Explained: How auction differs from administrative allocation of spectrum

The government has chosen to allocate satellite communication spectrum through administrative means, rejecting the auction route supported by Indian billionaires Mukesh Ambani and Sunil Bharti Mittal

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On Tuesday (October 15), billionaire Elon Musk praised the Centre for suggesting it might favour an allocation method for satellite spectrum, following Union Minister Jyotiraditya Scindia's remarks indicating that the government is not inclined to choose the auction route. This response came a day after Musk criticised an auction plan proposed by industrialist Mukesh Ambani, calling it “unprecedented.”

At an event in New Delhi, Scindia, who oversees the telecom ministry, stated, "If you decide to auction it, you will differ from the global process." Musk welcomed this comment, adding that Starlink will do its best to serve India.

The government has chosen to allocate satellite communication (satcom) spectrum through administrative means, rejecting the auction route supported by Indian billionaires Mukesh Ambani and Sunil Bharti Mittal.

This development underscores the growing competition for satellite services in the Indian market, which is projected to grow at 36 per cent annually and reach $1.9 billion by 2030.

Starlink, Musk’s company, advocates for direct licensing, aligning with global practices and arguing that spectrum, as a natural resource, should be shared. On the other hand, Reliance, led by Ambani, believes that an auction is necessary to ensure fair competition.

Satellite spectrum refers to the radio frequencies used for satellite communications, with the International Telecommunication Union (ITU), a United Nations agency, overseeing the global allocation of these frequencies. India, as a signatory to the ITU treaty, is bound by its guidelines.

Auction vs administrative allocation of spectrum

Auction:

The allocation of spectrum, a critical telecommunications resource, can occur through two main methods: auctions or administrative assignments, each with distinct benefits and processes.

An auction is a competitive bidding process where the government sells spectrum licences to the highest bidder. This method is designed to allocate scarce resources efficiently and transparently. Participants submit bids for spectrum licences, with the highest bid winning the licence, which often leads to significant revenue generation for the government.

Auctions are favoured for their market efficiency, as they allocate spectrum to those who value it most, ensuring optimal usage. They are also more transparent than administrative methods, reducing the potential for favouritism or corruption. This method is primarily used for commercial telecommunications spectrum, especially in competitive markets where multiple entities vie for access.

Administrative allocation:

In contrast, administrative allocation involves the government directly assigning spectrum licences to selected entities without a bidding process. This method is often used when auctions are impractical or less beneficial. The government sets eligibility criteria and grants licences accordingly.

Administrative allocation typically involves a nominal fee that covers administrative costs rather than reflecting the full market value of the spectrum. This method provides flexibility and is particularly useful for sectors where competition is less relevant, such as national security or public interest services.

It can also encourage the development of emerging industries, like satellite communications, by offering easier access to necessary resources. Administrative allocation is commonly used for government-related services or specialised sectors where demand is low or sharing frequencies among multiple users is feasible.

Key differences between auction and administrative allocation

The auction method is competitive and market-driven, generating substantial revenue and ensuring transparency by allocating spectrum to the highest bidder. It is considered highly efficient in commercial markets. In contrast, administrative allocation is a direct government assignment, typically with lower fees, which makes it less transparent but more flexible. This method is ideal for government services or specialised sectors, where market-driven competition may not apply. Both methods play important roles in spectrum management, with the choice depending on regulatory goals and market conditions.

Spectrum allocation controversies in India

India’s approach to spectrum allocation has been marred by controversies, particularly with the shift from auction-based allocations to administrative assignments. This debate stems from past scandals, including the infamous 2G spectrum scam.

The 2G scam involved allocating licences on a first-come, first-served basis, leading to massive financial losses and legal actions against several officials. It pertains to the alleged loss to the exchequer of Rs 30,984 crore and a presumptive loss of Rs 1.76 trillion in the allocation of 122 2G licences to telecom companies.

In 2012, the Supreme Court mandated auctions as the preferred method for spectrum allocation, a decision heavily influenced by the fallout from the 2G scandal. These events have significantly shaped public perception and regulatory frameworks around spectrum management in India.

However, the Telecommunications Act 2023 provided a non-auction route for the allocation of satellite spectrum.