1. Spectrum auction: Trai’s arbitrary pricing to blame for 700 MHz fiasco

Spectrum auction: Trai’s arbitrary pricing to blame for 700 MHz fiasco

Given the telecom regulator’s (Trai’s) reserve price of R11,485 crore per MHz for the 700 MHz spectrum frequency band was irrational, it is not surprising there have been no takers for the band in the ongoing telecom auctions.

By: | Published: October 4, 2016 6:28 AM
Given the superior propagation qualities of the 700 MHz 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 800 MHz and 900 MHz bands remain better-placed.

Given the superior propagation qualities of the 700 MHz 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 800 MHz and 900 MHz bands remain better-placed.

Given the telecom regulator’s (Trai’s) reserve price of R11,485 crore per MHz for the 700 MHz spectrum frequency band was irrational, it is not surprising there have been no takers for the band in the ongoing telecom auctions. Since the 700 MHz band, at even the reserve price, would have meant a bid of over R400,000 crore—as compared to R290,000 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 700 MHz 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 800 MHz and 900 MHz bands remain better-placed. Of course, the Cabinet has the power to reduce the reserve price and put the 700 MHz spectrum on auction again—in 2012, while Trai recommended 800 MHz be priced at twice the 1800 MHz 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 700 MHz band should have been relatively easy since last year’s auction had thrown up valuations of R2,682 crore per MHz for the 1800 MHz band, R8,681 crore for 900 MHz and R5,221 crore for 800 MHz. In 2012, while fixing the reserve price for 800/900 MHz, Trai used their relative propagation characteristics to arrive a reserve price which was roughly double that of the 1800MHz band—while the 700 MHz band has better propagation than 800 MHz, 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 800 MHz 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 700 MHz and 1800 MHz 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 the 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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