Despite a complete auction failure last October, where just 40% of spectrum on offer was bought, Trai doesn’t seem to have learnt any lessons. Worse, while Trai’s latest consultation paper on spectrum auctions talks of the poor health of the industry—debt of over `4.6 lakh crore and `3.1 lakh crore of deferred payments for previous auctions—it doesn’t realise its role in this. As a regulator, Trai’s job is to ensure auctions discover optimal pricing—if there is too little spectrum, for instance, auctions are not going to give correct results. This has driven up industry debt and ensured spectrum remained unsold, hitting both government and industry. In 2008, thanks to A Raja’s corruption, India had 12-14 telecom players. So when the 2010 auctions took place, apart from the exuberance of a new 3G technology that was ideally suited for high data speeds/traffic, the fact that there were just 3 slots of 5MHz each in the 2100MHz frequency band drove bids through the roof. In Delhi, the reserve price was `64 crore per MHz but the bid rose to `663 crore—together, Delhi and Mumbai accounted for 13.7% of industry revenue but their bids accounted for 40% of the total bids in 2010.
What is routinely touted as market-discovery of spectrum prices is, in fact, the result of distorted auctions, but Trai has never raised the issue or tried to fix this. In 2012, when the 1800MHz band auction took place, Trai should have fixed this anomaly by ensuring reserve prices reflected the ground reality but it did not. At `554.4 crore per MHz, the reserve price for 1800MHz frequency band in Delhi was quite similar to the 2010 bid-value for 3G spectrum (2100MHz)! So, though telcos bought the 1800MHz band to offer essentially voice calls, they ended up paying prices similar to what 3G/data spectrum cost. As a result of such expensive spectrum, while 295MHz of the 1800MHz band was on auction, only 127.5MHz got sold. Despite both industry and government getting hit by this, Trai is not ready to junk this sad history of using the last bid price to fix the reserve price for the next auction.
Most worrying is the obfuscation on the reserve price for 700MHz that is to be used for 4G services since there is little spectrum available in the 800/900MHz frequency bands which can also be used for this. In the past, Trai’s latest consultation paper says, “the Authority … has used relative technical efficiency factor of other spectrum band to determine the value of 700 MHz spectrum band”. That is, Trai looked at the relative efficiency of various bands to come up with the reserve price—so, if X is the reserve price for the 1800MHz band and 700MHz is twice as efficient, its reserve price will be 2X.
That sounds logical, but this is not what Trai did. In 2012, Trai said 1800MHz and 2100MHz bands had similar propagation characteristics—since there was an auction-price for 2100MHz, this was used as the reserve price for the 1800MHz band. Since there had been no auctions which would have indicated market values for the 800/900MHz bands, Trai used their relative propagation properties to arrive at the value. It said they were twice as good as the 1800MHz band and fixed their reserve prices accordingly. What of the 700MHz band? Strangely, Trai used a completely different method. Presumably, it assumed that since the 700MHz band was going to be used for 4G services, it had to be valued differently from 800/900MHz which was, at that point, being used for 2G services. Trai used European valuations of
Trai used European valuations of 800MHz band and 1800MHz band for this—the Europeans were using 800MHz band for 4G, so Trai decided this would be the value for India’s 700MHz band! Based on this, it said 700MHz had to cost four times 1800MHz. Apart from the fact that Trai got even this math of relative spectrum prices wrong (goo.gl/UbA5qx), this created a situation where, while 800MHz band was sold for `847.7 crore per MHz in 2015, the reserve price for 700MHz is `1,595 crore—both can be used for 4G! And Trai has never revisited this despite the fact that exorbitant prices ensured not even one MHz of 700MHz was bought last year.
There are several other problems with the recommendations—in the past, Trai recommended ‘harmonisation’ of bands like 1800MHz which resulted in more spectrum for auction and also to make it suitable for 4G. It has omitted to do the same this time around—in the case of the 900MHz band, if this were done, older telcos would be able to get larger and contiguous chunks of spectrum and could use them for 4G services. Hopefully, these contradictions will be pointed out at the various open house discussions that are to follow and the government will do something about it.