Cheap Spectrum For A Competitive Economy

Telecom companies would be relieved by the government’s assurance that it will review the pricing mechanism of radio frequencies that carry the voice and data traffic of over a billion people. Telecommunications minister Ravi Shankar Prasad’s statement at the India Mobile Congress, an industry gathering, that policymakers were alive to the industry’s concerns and were instituting a process to reform the pricing of spectrum is likely to revive flagging interest in auctions slated for later this fiscal year. Mobile service operators had previously indicated that the base prices of air waves that were to go under the hammer in this round were exorbitant. Older telecom companies such as Bharti Airtel and Vodafone Idea are already laden with large debts incurred in bidding for spectrum at earlier auctions, and had indicated that they might have to sit out this round if the minimum bid prices arrived at by the Telecom Regulatory Authority of India, or Trai, were not lowered significantly. Also, they argued, not enough radio frequencies were being put up for sale for the country’s networks to shift to fifth generation (5G) telecom services.

Now that Prasad has indicated that base prices are not yet final and that they would be reviewed, the Cellular Operators Association of India, an industry lobby, could pat itself on the back. The regulator had refused to reconsider its price estimates for upcoming auctions despite it being pointed out that air waves were being sold in India at rates that were almost four times those in other countries. Trai had argued that its projections were based on a holistic appraisal of circumstances. For Bharti Airtel and Vodafone Idea, both involved in a bruising price war with new entrant Reliance Jio since 2016, that stance was a deep disappointment. Having lost nearly all their pricing power, telecom service operators were in no position to pass on the costs of high spectrum fees to subscribers. Analysts had even forecast tepid interest in spectrum for 4G services, given that Vodafone Idea and Bharti Airtel have excess radio frequencies for these and their networks are still being rolled out. Half their subscribers are still on 2G and 3G networks, which make for high carriage charges.

The government, however, is not solely to blame for expensive spectrum, although successive regimes have displayed an inordinate dependence on the sale of radio frequencies to shore up their capital receipts. Air waves are a scarce national resource, and, in general, the Centre has tried assorted methods to allot them. At various stages, India has rationed radio frequencies, made companies queue up for them, and put them up for auction. As a result, the country’s telecom market has undergone several transformations, with all twists and turns leading to the conclusion that auctions were the most efficient mechanism. This has meant that top bidders suffer the so-called “winner’s curse”, often having overpaid for spectrum. This time around, this is what needs to be guarded against. As the government gets down to revisit the process, apart from reducing base prices, perhaps it could consider auction models that are specifically designed to overcome that curse. High spectrum prices cannot co-exist with cheap mobile telephony for too long. Something has to give. Let’s hope it’s not service charges. Low-cost communication helps turn the economy competitive. But for that, the market needs to be bustling with competition. Cheap spectrum could enable that.―Livemint