At a time when auctions for the 1,800 and 900 MHz spectrum bands failed due to high reserve price and even that of 800 MHz elicited response from only one operator, Planning Commission deputy chairman Montek Singh Ahluwalia has urged that fresh recommendations be sought from the Telecom Regulatory Authority of India (Trai) for holding a fresh round of auctions. He has also said that Trai should be asked to examine the feasibility of allowing operators to trade in spectrum once they win it in auctions.

Outlining his views in a note dated April 1, Ahluwalia has said the auction design is fine in India but the failure has been due to the high reserve price and changed market realities, which should be taken into account by the sector regulator.

Ahluwalia?s views assume significance since he is part of the empowered group of ministers on telecom that has been taking key decisions regarding auctions and is slated to decide the reserve price and timing of the third round of auctions later this year.

?If it (spectrum) is auctioned on the clearly stated basis that it is tradable, then any potential for gain through subsequent trading will be reflected in the auction price,? Montek said.

The Plannning Commission has been advocating spectrum trading to improve efficiency, boost competition and provide incentives for innovation to mobile operators since December last year.

?Since spectrum is a scarce resource, priority will be on its vacation from lesser efficient uses and shift to more efficient use. Eventually move towards a regime that permits spectrum trading on a platform and create a market-driven mechanism towards its efficient use,? said the Planning Commission in the 12th Five-Year Plan (2012-17) report.

Spectrum trading will enable operators to sell surplus spectrum to those who are finding it difficult to serve their growing customer base, leading to a more efficient use of the resource.

According to Ahluwalia, tradability will only ensure greater economic efficiency which in turn will mean higher revenues to the government. “Making spectrum tradable will also increase the auction realisation, which will help mobilise additional revenues in 2013-14, a factor which is important for the finance ministry,” Ahluwalia said in his note.

The finance ministry is expecting to get Rs 40,847 crore from telecom services, including sale of spectrum and annual licence fee, in 2013-14.

Currently, service providers can share infrastructure and mobile networks, including telecom towers, but not spectrum.

Since 2003, Trai has been pushing for trading with the department of telecommunications, which had been rejecting the idea.

Lately, while DoT has agreed “in principle” to the idea, it has stated that this is not the time to introduce such concepts in the telecom industry. DoT’s argument is that if operators are permitted to trade in airwaves, they might shift from providing telecom services to only dealing in spectrum trade, creating greater shortage of the scarce resource.

On the spectrum pricing issue, Ahluwalia said, “Trai should be asked to take into account the recent auction experience and the changed market conditions” before recommending fresh reserve prices. ?Market conditions have changed considerably as have business assessments of future prospects. There may also have been changes in technology which are relevant,? he added.

Telecom operators burdened by falling revenues and subscriber numbers are facing a debt of Rs 2,50,000 crore due to a weakening economy, lack of availability of funds from banks, low confidence in the regulatory system, and low returns on investment.

Under such circumstances, pricing of scarce spectrum has become a controversial issue. The November 2012 auction saw the government earning only Rs 9,407.64 crore against expectations of Rs 28,000 crore since operators claimed the reserve price was too high. The reserve price set was 11 times higher than what operators paid in 2008.

Another auction held in March this year saw only one participant, which submitted bids worth Rs 3,639 crore. This after the government slashed the reserve prices by 30% for GSM spectrum and 50% for CDMA.

“A third failed auction would impact very adversely on the investment climate and our credibility,” said Ahluwalia, adding that instead of another “arbitrary” reduction in reserve prices, Trai should issue fresh recommendations on the matter.