Since the defence ministry has agreed to swap 15MHz of spectrum in the 2100MHz band, it is not clear why the telecom ministry has not announced this—doing so will do wonders to investor confidence, dented in recent weeks by the washout in Parliament. While a section of the department of telecom is still in favour of having 2G and 3G auctions separately, as has been pointed out before, this will hit industry very hard as incumbent telcos whose 900MHz spectrum licenses are expiring—the 2100MHz frequency band is a close substitute for the 900MHz frequency band—will have no option but to bid astronomical amounts to retain them which will hit their viability in a big way.
But even from the point of government revenues, however, the move may not make sense. Assuming enough 2100MHz or 3G spectrum is not auctioned in February, the government’s plan will be to get large sums when it is auctioned later. But, it is worth keeping in mind, once spectrum trading norms are in place, the value of the of 2100MHz spectrum left with the government will crash as telcos with spare spectrum will probably start selling off chunks of this. Which telco will do this is difficult to say, but BSNL/MTNL have 110MHz of 2100MHz frequency spectrum between them across 22 circles—though details of their 3G subscribers are not reported, they are unlikely to be more than a small fraction of Bharti Airtel which has 15.4 million subscribers in its 65MHz of spectrum across 13 circles. Similarly, Aircel has just 2.3 million 3G subscribers while, at 65MHz, it has the same amount of spectrum as Bharti Airtel—Vodafone has 13.6 million 3G subscribers in its 45MHz of spectrum across 9 circles. Once the government notifies spectrum trading norms, the larger telcos will be able to buy 2100MHz frequency spectrum from other telcos in most telecom circles, thereby lowering government revenues from future auctions.
In which case, the choice before the government is a simple one. If it doesn’t auction enough 2100MHz spectrum in February, telcos will still bid high amounts, but the value of 2100MHz frequency spectrum in later auctions will collapse. There is also the very real risk of killing the goose that lays the golden egg since the industry will be in dire financial straits if the February auction does not have enough 2100MHz spectrum in it.