For several years after then minister A Raja gave away scarce spectrum to a chosen few in 2008, telcos in India have had a bad time. Since they were starved of spectrum, when the government opened up the 3G spectrum in 2010, they overbid and have run up huge losses on this account. That constrained-supply auction was taken as the norm by the then telecom regulator (Trai) and the bid price for that auction was taken as the reserve price for the next auction. Apart from the fact that the economy was doing well in 2010 and was doing badly in 2012, when Trai came up with its auction recommendation, it never made sense to convert the 2010 bid price to the 2012 reserve price. There were further complications since, after the CAG report on the Raja bids, the government decided it would also charge firms for the so-called ‘extra’ spectrum they had—this price was to be based on the 2012 auctions, so not only would new spectrum cost a lot more, even the old spectrum would cost more.
All of this is why the 2012 and 2013 auctions failed, and that is when Trai was brought into the picture again, this time under a new chief. After doing a series of exercises and keeping in mind the dramatically changed economic landscape, the regulator came out with a new reserve price for the auction, on average around 40% of the earlier recommendation—mind you, this is a reserve price, the actual bid price will depend on buyer interest in the auction. Trai also argued, correctly, that since a large market price was being paid for the spectrum, the annual spectrum usage charge (SUC) needed to be lowered—in the past, when spectrum was not auctioned, this was made up by charging firms are higher annual SUC. Since the rate recommended—3%—was a flat one, it also ensured there was no arbitrage to be got by misclassifying revenues from one type of telecom service to another. Given that firms were being asked to give up their valuable 900 MHz spectrum when the licenses came