Telecom Regulatory Authority of India (Trai) chairman Rahul Khullar has said that the recent spectrum auctions failed because of a high reserve price that did not reflect the ground realities. ?Of course, the auctions failed because of the high reserve price, which was not in sync with market realities. In hindsight, everyone knows it. The years 2011, 2012 and 2013 were not 2006, 2007 and 2008… The former were boom years and the latter years were of downturn,? Khullar told FE.
Asked how he would go about it if the government decided to seek his recommendations now on what the reserve price for the next round of auctions should be, Khullar said: ?I will go through a consultation process, look into industry issues and whatever has happened in the past. I would focus on objective reality.?
Elaborating, he said that ?the concept that spectrum can be priced in an absolute sense is wrong?. ?Pricing of spectrum has to be done in the context of market realities. It can?t be a case that the base price of a new round of auctions should be the price at which spectrum was sold in an earlier round of bids. Market realities change, the industry?s paying capacity changes and these need to be taken into account while determining the price of spectrum.? Khullar?s reference was to the concept pointed out by Trai earlier that the closing price of 3G auctions should be the base price for the new auctions.
If the government finally decides to refer the matter to the Trai, which then comes with a reduced price, then it would solve much of the problem the sector is facing right now with several matters landing up in courts. Not only would spectrum get sold but issues relating to renewal of licences would also get resolved. Khullar admitted to the same in the context of refarming ? taking back the more efficient 900 MHz spectrum from operators and giving them 1,800 MHz while putting the former for auction ? saying its success depended on setting a reasonable price. ?The operators don?t think that they hold either the licence or spectrum in perpetuity. If the price is set at a reasonable level, the process would go through.?
The base price for auctions of 900 MHz spectrum was set at twice that of the 1,800 MHz band, which was seen as very high and unreasonable by the industry.
The matter has been challenged by operators like Bharti Airtel and Vodafone and the matter is currently in the Delhi High Court.
The Trai chairman?s comments on high reserve price comes at a time when the empowered group of ministers (EGoM) headed by finance minister P Chidambaram is set to decide if fresh recommendations should be sought from the regulator on fixing a new reserve price for the next round of auctions. Planning Commission deputy chairman Montek Singh Ahluwalia, who is also a member of the EGoM, was the first to write to telecom minister Kapil Sibal that after two failed auctions, the government should seek fresh recommendations on the reserve price from Trai. The department of telecommunications is amenable to the idea but a final decision has to be taken by the EGoM when it meets next.
The government reduced the reserve price twice but not by enough to make it attractive to the industry. The result was that the first round of auctions held in November 2012 saw tepid response, leading to a revenue of a paltry Rs 9,408 crore for the government, and the second one planned in March 2013 had to be called off as no bidders came forward.
However, Khullar did not blame his predecessor JS Sarma, during whose time the base price was recommended at a steep Rs 18,000 crore for 5MHz of pan-India spectrum in the 1,800 MHz band. ?The high base price was due to the surcharged atmosphere of the time. Those were extraordinary times. The Supreme Court had cancelled the licences. The Comptroller and Auditor General of India had pointed to huge losses. Everyone was running scared and wanted to be excessively cautious. Nobody wanted to be caught on charges of nepotism and favouritism. Such an atmosphere of excessive caution led to a price which was out of sync with reality,? Khullar said.