Two attempts have been made to auction spectrum in the 1800 MHz band. Both have failed despite reduction of base price in the second attempt. The government is readying itself for a third attempt by further reducing the base price substantially. Will the Department of Telecommunications (DoT) be third-time lucky?
There are several issues with the 1800 MHz band. First, the spectrum proposed for auction is largely fragmented and, therefore, can at best be used for 2G services. Is there a demand for more spectrum for 2G services? Operators such as Tata Teleservices who do not have spectrum for vanilla mobile services in Delhi need it. There are a few other areas where there may be similar demand.
However, with stagnating growth in mobile connections, there seems to be little scope for across-the-board demand for spectrum that is suitable essentially only for 2G services. Another factor to consider is the fact that the spectrum user charge (SUC) as a percentage of revenue increases with quantum of spectrum held. With diminishing or stagnant revenues, operators are not likely to want to accumulate any more spectrum. The picture may change if Trai’s recommendation for flat rate SUC is accepted despite a telecom panel’s rejection of this recommendation. As for new operators coming in, it would indeed be a surprise if any one would want to invest in 2G market in India, which is already crowded and growth is stagnanting.
Why a scramble for licences happened in 2008 is well known and cannot be expected to repeat. If there were a contiguous 5 MHz slot available, one could have expected some interest and even the possibility of FDI. The recent print media reports on objections from the defence ministry further narrows down the availability of contiguous spectrum.
The government needs more revenues and FDI from spectrum auction but, clearly, going the 1800 MHz band auction route is not the solution. What are the alternatives?
For an auction to succeed, the offered commodity has to be what the market wants. In the case of spectrum, it has to be of a type where services desired by the customer can