Telecom: Expectations remain mismatched

The Asian Age, October 19, 2016

By Pradeep S Mehta and Rohit Singh

The re-auction of 700 MHz band should only be conducted after a thorough review of the reserve prices. The band is crucial for India’s development goals and the Digital India initiative…

The aim of the wise is not to secure pleasure, but to avoid pain
— Aristotle
Be it for national plans or company revenues, targets are usually a bit over-inflated. This is not to set unrealistic goals, but to ensure maximum possible efforts from all.

However, when the set targets are left unachieved by 60 per cent, it suggests serious mismatch in expectations. Similar may be said about the recent spectrum auction, which failed to live up to its hype. With 40 per cent spectrum sold and the government realising only 12 per cent of the spectrum value, it is a matter of concern. Further, the industry unanimously ignoring specific bands and also the majority spectrum being bid and sold at the reserve prices, indicate some price discovery mechanism anomalies. Unrealistic planning is bound to cause pain for the already debt-laden industry. Thus, let us be wise in our approach. Let’s create a healthy balance, which takes care of the government revenue, facilitates the industry’s growth and provides better service to its raison d’etre, the consumers.

The mega auction was supposed to be a one stop solution for all spectrum concerns. Much hype was created and the government labelled it as the biggest opportunity for the telecom industry. However, despite the industry concerns over the quantum of reserve prices, the government was stuck on its stand. Experts had predicted the 700 MHz spectrum to be left unsold, because of unrealistically high reserve prices. That’s exactly what happened. The situation is that on the one hand, the most efficient spectrum band (700 MHz) remains idle and unsold, and on the other, the telecom services continue their struggle on quality. The poor quality of service (QoS) for mobile Internet in India was also highlighted in a recent report by CUTS International.

There was 2,354 MHz of spectrum on offer, across bands, and the government had set some unrealistic targets for its sale. Expecting the auction to fetch `5.39 lakh crore, from an industry which is already under a debt burden of `3.8 lakh crore, was highly impractical. The expectations were well broken by the industry, which only bought 40 per cent (965 MHz) of the spectrum on offer, generating only `65,789 crore as revenue for the government. 800 MHz only found Reliance Jio as its suitor, that too only for four circles. 900 MHz, having fragmented spectrum, was overlooked by telcos as it wouldn’t have helped any in creating five MHz blocks.

1,800/2,100/2,300/2,500 were the bands which the telcos seemed keen on bidding. Interestingly, majority of spectrum was sold at the reserve prices, barring a few in 800, 1,800 and 2,300 MHz bands. Considering all operators crying out on spectrum scarcity for years now and cut-throat competition in the sector, the sale of a majority of spectrum blocks at reserve prices poses an interesting question. Why wasn’t there enough competition amongst telcos for spectrum, if they needed it so much? The situation thus defies the law of demand and supply.

The experience of 2013, where the spectrum was left unsold due to perceived unreasonable reserve prices, should have taught a lesson to the government to approach this auction pragmatically. However, that was not the case. With the complete 700 MHz band left unsold this time, the government is now contemplating re-auction. The Telecom Regulatory Authority of India had earlier released a consultation paper to identify reserve price of the spectrum bands. However, the consultation has resulted in reserve prices, which are perceived too high by the operators. Hence, consultation as a price discovery mechanism hasn’t been efficient and thus there is a need to find alternative ways of setting the reserve price of spectrum.

The situation has already brought the Trai and department of telecommunications (DoT) to a faceoff. Despite this DoT doesn’t seem to accept existent flaws in the process and rather claims the ecosystem to be underdeveloped. The re-auctions are expected to be held at an “opportune” time. A time where the country is already struggling with poor QoS, partially because of spectrum scarcity, the “wait” for opportune time is beyond our understanding. An aspect important to consider is that beyond the spectrum purchase, the operators also have to invest heavily on the infrastructure, to be able to use the spectrum bought. The total industry debt has risen to roughly `4.25 lakh crore, which suggests some investment constraints. Thus, the foremost objective of the auction should have been dispensing the entire lot of spectrum to telcos to improve upon the current QoS. This would have meant the entire spectrum sold.

Consolidation in the sector is picking up pace and the sector may see more consolidations happening in future. On the one hand, this might result in betterment of QoS with limited players possessing sufficient spectrum, or on the other hand may as well lead to lowering of competition.
Overall, telcos have already started focusing on the broadband service, which can be seen from their bidding for the broadband spectrum bands. This again signifies about the transition from a voice-heavy to data-heavy regime. Thus, keeping the reserve prices down a bit to help the indebted operators in buying it as well as helping the government to earn reasonably good revenues is an optimum solution to this problem.

Thus, the re-auction of 700 MHz band should only be conducted after a thorough review of the reserve prices. The band is crucial for India’s development goals and the Digital India initiative. The reserve prices should only be considered as the lowermost bound to kick-start an auction and not as the final selling price. The industry is undergoing a major transition and needs support for all relevant stakeholders. Let’s be wise and avoid causing pain. Rather let’s facilitate the shift towards all digitally empowered citizens and let us realise the true meaning of Digital India.

The authors work for CUTS International

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