Confusing airwaves

Auctions have become a sort of buzzword when it comes to the allocation of spectrum of any kind in the communications world. Take, for example, the commotion over the methodology of allocating airwaves for satellite communication services or to enterprises for constructing private 5G networks. In both these cases, there is a vocal section arguing against auctions, only to be countered by another equally vocal section asserting that any allocation without an auction amounts to violating the Supreme Court judgment of 2012. There is no denying that auctions are the most transparent manner to allocate natural resources in the absence of any other methodology that is fair and in line with the principles of natural justice. This was also the essence of the Supreme Court judgement in 2012.

Spectrum auctions in the country began in 2010 following allegations of corruption and loss of revenue to the exchequer when the UPA government granted 122 telecom licences in 2008 at prices that were fixed in 2001. Since the demand for spectrum at that time was much higher than its availability (the number of operators in each area was 10-12), such allocation was seen to be highly arbitrary and the Supreme Court rightfully cancelled them in 2012. However, with the number of operators shrinking to just three after 2016, and the amount of spectrum increasing, sticking to auctions in each case doesn’t make sense. For instance, the auctions of 2016 and 2021 saw the sale of only 40% of the spectrum and that too at the reserve price set by the Telecom Regulatory Authority of India (Trai). This proved that price discovery, which is the key objective of auctions, was not being met. The 5G auctions held in 2022 saw 71% of the spectrum being sold and were a huge success compared to the previous two. However, with the exception of one area, again all spectrum was sold at the reserve price.

The success of the 2022 auction was because Trai had lowered the reserve price by around 39% across bands, by changing the methodology of determining the base price. Past auction prices were not used as a benchmark for setting a fresh base price if the entire spectrum on sale in a given band didn’t get sold. The message is clear: auctions are no longer held because too many players are chasing a commodity that is in short supply, so a price discovery mechanism is needed. In fact, the situation today is the opposite. Since the reserve price is fixed by the Trai according to a formula, and everything is sold at that very price, it is not very different from administrative allocation.

The government has been urging Trai to conduct auctions to allocate satellite spectrum even though its nature is very different from that of terrestrial spectrum, which is used for voice and data services by telecommunications companies. Similarly, even though auctions for 5G spectrum were held last year, the government wants the same spectrum to be allocated to enterprises for constructing private 5G networks through a separate auction. It seems that, having learned from the 2G experience, the government is sticking to auctions merely for the sake of appearances. As far as industry groups are concerned, it has become a tool for them to either deny or delay the entry process of new players offering new services. It is high time the government as well as the industry emerges from the one-size-fits-all mindset in a rapidly changing technological world.