The recently concluded 3G spectrum auctions are a reason to celebrate. This is so not only because the windfall gains have put a smile on the FM?s face and the industry has received clean, fair and hassle-free spectrum, but also because it is a watershed in the future allotment of the country?s natural resources in a manner that is undisputable in its merits. The chances of controversy were close to zero due to the infallible auction design?the clock auction method rather than the usually practised English auction.
The aim of the spectrum auction, as mentioned in the notice inviting applications, was to ensure that there was one private 3G-spectrum operator in every circle and that the government revenue be maximised. Though Airtel, which failed to get a pan-India spectrum, has blamed it on the design of the auction?which propelled prices?simple arithmetic shows that this might not be true. One good thing about the auction was that unlike other auctions held globally, the mechanism ensured that all successful bidders pay the same amount, and the price increments in the bids were not decided by the bidders but by the auctioneer. These price increments were determined by a pre-declared mechanism and so the increases were very small. Hence, everyone paid the same amount for the quantum of spectrum, instead of the operator willing to pay the highest amount getting the first slot and the other slots being given out at lower rates. Whatever the final bid price, there?s certainly a business case for operators. So far, Indian telcos are posting 40% Ebidta margins despite providing services at the lowest tariffs globally.
Also, a close scrutiny shows that prices were not really high enough to warrant complaints. Operators are getting the spectrum for 20 years, spreading the cost over a similar period. So, the price at which they have bought the spectrum works out to around 1-1.5% of their annual sales. Now, with the spectrum being the most important raw material in the telecom business, this seems to be a fair percentage. Operators were undoubtedly used to much less pay-outs so far, hence their best possible estimate of how much the spectrum would and should cost turned out to be just an estimate.
Rather than complain, the auction format needs to be lauded because it not only maximised the revenue for the government but also ensured that not a single circle in the country is deprived of 3G spectrum. It also prevented any possibility of cartel formation, which has been the case in similar auctions worldwide.
For instance, the auctions in India coincided with auctions in the Netherlands, but in the latter?s case the auction bombed with lower than estimated earnings for the government and also some slots of unsold spectrum. Another interesting example is of Germany, which has auctioned 3G spectrum in the past. There it was completed in just two rounds as the bidders used code bidding to signal their intentions in the first round so that they all fitted into place in the second round. Consequently, the two most serious bidders signalled to one another through their bids and stopped bidding at the end of the second round whereby both got half of the blocks at very low prices.
Such examples are numerous?Australian, Swiss, Turkish. In all these auctions either there were unsold blocks of spectrum or the government failed to effectively realise the market price. Also, there were a string of auctions across Europe where the bids went really high and it took very long for the operators to break even?this was mostly because these were English auctions in which the bidders chose the amount they wished to pay. In the Indian clock auctions, the government decided the amount and bidders either agreed to it or kept out of bidding.
There should not be any cause for complaint by any operator here because in the short-term no one was bidding for the spectrum because of the prospects of 3G services. The bids were essentially because of shortage of spectrum on an overall basis and getting sufficient amount would ensure a smooth growth path ahead. As reported by this newspaper, consumers would not suffer even if their service provider has failed to win spectrum because policy-wise and technically intra-circle roaming is permissible, which could see the arrival of new forms of commercial arrangement.
Going forward, the 3G-auction method should also be used for allocating all scarce natural resources.
anandita.mankotia@expressindia.com
