When the government first set up the Telecom Regulatory Authority of India (Trai), and the same goes for all regulators, the idea was to come out with an independent and transparent set of experts to replace the opaque corruption-ridden government process of decision-making of the type that led to the A Raja kind of scam. To be sure, some Trai decisions have been disastrous, but the advantage of them was that, since they were written and supposedly reasoned ones, they could be challenged in a court of law. The same, however, can’t be said of any government decision. So, you have the government, driven by the lure of fat auction bids, refusing to see reason and starving the telecom sector of vital 3G spectrum, but there is nothing anyone can do about it. After pointing out that there was no point holding an auction if it simply led to jacking up prices so much operators would be forced to shut shop and the ones that were left would have no money to invest in the necessary networks, Trai has been forced to repeat itself with the department of telecommunications (DoT) completely focussed on increasing bid prices. As Trai has said, if the availability of 900MHz and 1800MHz spectrum is not being increased and the supply of 2100MHz spectrum is constrained, what is the purpose of the auction in February? In which case, the Modi government would do well to simply wind up the Trai; it probably wouldn’t help get better regulation, but it will remove the fiction of independent decision-making.
Indeed, over last week, FE has been running a special series on its front page, making precisely the same points of spectrum in India being too costly and inefficiently distributed. At current prices of auctions, for instance, spectrum in the US costs $1.5 billion per MHz as compared to $1billion in India—that is also overstated since US spectrum is in perpetuity while Indian spectrum has to be re-bought every 20 years at exorbitant prices. But even if you ignore this, consider the fact that in the US, telecom industry ebitda is $90 billion versus $6 billion for India. A few things, as Spectrum First brings out, result from this. For one, telcos start going bankrupt and don’t participate in subsequent auctions.
Two, telcos simply don’t invest in building up networks, which is why you have the kind of poor quality networks that abound in India. Three, even this cannot last forever as, with revenues not rising fast enough—who will pay for poor quality service?—telcos also run out of money to buy fresh spectrum. Trai’s reply to DoT points to the work done in Europe which showed that, after bidding exorbitant prices in the 2000 and 2001 auctions for 3G spectrum, all subsequent auctions got much lower bids.
What makes it worse for Indian telecom is that telcos are so divided, there is little question of them putting up the kind of united front they did in 2002 when the government was trying to give back-door telecom licences to a few firms—the licences got given, but in the bargain blatantly ill-conceived policies were set right for the older firms. Right now, though the bigger firms know they will bleed, they aren’t being proactive since they are of the view they can stand the bleeding. This is poor strategy.