1. Trai’s arbitrary, and inexplicable, pricing to blame for failure of 700MHz auction

Trai’s arbitrary, and inexplicable, pricing to blame for failure of 700MHz auction

Given the telecom regulator’s (TRAI) reserve price of Rs 11,485 crore per MHz for the 700MHz spectrum frequency band was irrational, it is not surprising there have been no takers for the band in the ongoing telecom auctions.

By: | New Delhi | Published: October 3, 2016 6:34 PM
Since the 700MHz band, at even the reserve price, would have meant a bid of over Rs 400,000 crore – as compared to Rs 290,000 crore mopped up in all the auctions since 2010 (Reuters) Since the 700MHz band, at even the reserve price, would have meant a bid of over Rs 400,000 crore – as compared to Rs 290,000 crore mopped up in all the auctions since 2010 (Reuters)

Given the telecom regulator’s (TRAI) reserve price of Rs 11,485 crore per MHz for the 700MHz spectrum frequency band was irrational, it is not surprising there have been no takers for the band in the ongoing telecom auctions. Since the 700MHz band, at even the reserve price, would have meant a bid of over Rs 400,000 crore – as compared to Rs 290,000 crore mopped up in all the auctions since 2010 – the failure of the auction in this band means over 70% of the total 2016 auction, by way of value based on the reserve price for various spectrum frequency bands, was rendered a non-starter from the word go.

Given the superior propagation qualities of the 700MHz frequency band, a failure to auction it has meant Indian telcos have been denied the opportunity to provide top-quality internet services to users – this also means telcos who already have spectrum in the 800MHz and 900MHz bands remain better placed.

Of course, the Cabinet has the power to reduce the reserve price and put the 700MHz spectrum on auction again – in 2012, while Trai recommended 800MHz be priced at twice the 1800MHz price, the Cabinet lowered this to 1.3 times and when the auction still failed, the reserve price was further cut by half in 2013.

Setting a reserve price for the 700MHz band should have been relatively easy since last year’s auction had thrown up valuations of Rs 2,682 crore per MHz for the 1800MHz band, Rs 8,681 crore for 900MHz and Rs 5,221 crore for 800MHz.

In 2012, while fixing the reserve price for 800/900MHz, Trai used the relative their propagation characteristics to arrive a reserve price which was roughly double that of the 1800MHz band – while the 700MHz band has better propagation than 800MHz, it doesn’t have as robust an eco-system in terms of phones that work on it right now; so a price roughly equal to 800MHz should have been expected. Instead, Trai used a flawed 2012 recommendation of an earlier Trai.

At that time, Trai had used the relative auction prices of 700MHz and 1800MHz bands in some European nations and applied this to India. Using a European norm made little sense to begin with, but what was even more arbitrary, Trai used a factor of 4 while this differed from 28.5 in Germany to 3.1 in Italy, 1.4 in Portugal and 1.8 in Sweden.

While analysing the auction, both the regulator and the government will do well to examine how such a poor recommendation was made and why the telecom ministry didn’t strike it down either – in any case, when there is auction process, it is not clear why reserve prices are kept so high since, once there are enough bidders, the market-price will be discovered anyway.

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