The base price fixed by Trai, under an earlier chairman last year, was based on the prices fetched in the 3G auctions of 2010and this, in turn, was jacked up several times by putting in a multiple to work out the base price of spectrum in the 800 and 900 MHz bands. But this was always a bad idea. For one, the 2010 auction was a constrained one since, thanks to A Rajas shenanigans, the older telcos had no spectrum to continue operationsafter the 3G bids, where they bid through their nose, the telcos had enough spectrum; more got freed up as they started shedding non-paying customers. More important, the bottom fell out of the telecom market when, along with overall economic conditions plunging, average revenues per user began a steady climb downwardsfrom R180 per subscriber per month in Q1FY11, they fell steadily to R150 in Q2FY13. In such a situation, it never made sense to be looking at 2010 auction prices as the baselet alone multiples of thisbut thats what Trai did, and under a new chairman, Trai went along with the proposal.
Worse, Trai even mandated a complete change in the way licences were to be renewed, and imposed large costs on industry by proposing re-farming of the 900 MHz spectrumthis meant the debt-laden industry was even more cash-strapped. While the Trai-mandated bid prices were a bad idea, they could still be financed if annual revenue-shares were reduced to a fraction of what they werethe government, however, failed to move on this even though, privately, senior officials said they understood the critical need to do so. Under the circumstances, it made rational sense not to participate in any bid, and thats what the telcos have done. While the industry continues to play wait-and-watchhow much will government lower prices bythe government would do well to have a new, and complete, consultation on the matter to take into account the new realities.