Wasted spectrum
Telecom auction fails price discovery test
Once again, a telecommunication spectrum auction in India has not met its assigned numbers. The short auction of some spectrum, over only two days, brought in around ~80,000 crore, of which about a fifth is to be made available before the end of this fiscal year. Government officials have insisted that the auction has brought in more than they expected. But that doesn’t mean much, given how much spectrum was left unsold in the first telecom auction in almost five years. Wasted spectrum helps nobody. It is an opportunity cost for the economy that needs to be taken into account; an auction with a reserve price so high and so irrational — resulting in wide swathes of unsold spectrum — is one that is poorly designed and does not serve the economy or consumers. On this occasion, as in 2016, the 700-MHZ band remained completely unsold thanks to the poorly set reserve price. The premium 2,500 MHZ band too was unsold. This means, even as services have been scaled up across the country and tested by a global pandemic and work at home, and complaints have grown about the poor quality of service, the most productive and effective band of spectrum has not been utilised for development.
The political costs of past telecom scandals should not continue to haunt a government more than a decade later, especially when “first come first served” mechanisms have been replaced by efficient and transparent auctions. High reserve prices are not sensible stewardship of the national exchequer — they are in fact the opposite, a waste of crucial resources. Reserve prices that consistently miss the market clearing price for the resources are set irrationally and must be changed. Thus, there is no reason for the government to pat itself on the back about the successful conclusion of the telecom spectrum auction. No auction is successful if less than 20 per cent of the goods on offer, by value, are sold, which was the case on this occasion. Nor can the sale of only 20 per cent of spectrum be seen as somehow maximising the returns to the exchequer. In the past, someone might have said it was in fact a “notional loss” of vast magnitude.
This lesson must be taken to heart as soon as possible by policymakers, and also by the political decision makers at the highest level. The three large telecom providers wanted at this time to use the auction to fill the gaps in their services and increase the efficiency of their spectrum holdings. But the next auction will be to determine who holds spectrum appropriate for a 5G roll-out. It is not yet clear when such an auction would be held — nor is there any rush, given the pandemic and the adverse effects of court judgments on the sector. But before the next auction is held, the government should evolve a more mature attitude towards the sector and towards spectrum resources. The reserve price will have to be rationally set in order for the 5G auction to be a success. For that to happen, the government must first recognise that “success” would necessarily involve the actual deployment of spectrum for the 5G roll-out at a fair, market-determined price.