The signal from Trai’s answer to the conflicts over allocation of radio spectrum for 2G services is that of a bureaucratic legacy. Though it did point the issue in the right direction, there seems to be little sign of the principle it says it followed; a scientific approach. Instead of committing to the auctioning of spectrum to the highest bidder, it settled for what it perceives as a non-controversial solution—first-come-first-served for allocation coupled with a tightening of the current regime. But the consequent queuing is likely to create confusion and a premium for those who get first in line.
At the core of the issue is the shortage of spectrum availability when compared with rising demand. Existing players have exerted ample pressure on the grounds that they are facing a huge crunch and that once they have a licence to provide cellular services, their spectrum needs must be met before any new entrants’ requirements. Their entry licence was bundled with 6.2MHz spectrum and allocation of additional spectrum is based on growth in subscriber numbers. However, there is reason to believe that some claims on numbers were inflated—recall the last verification drive in the wake of which 10 million ‘subscribers’ were struck off from the lists.
To deal with the situation, Trai could have shown much more ownership of the matter—that is, spell the urgency for auctioning of 2G spectrum. Read Trai’s own statement (page 47) in the context of the 2G services that fall in the 800MHz, 900MHz and 1,800MHz spectrum band: “...the authority is conscious of the legacy, i.e. prevailing practice and the overriding consideration of level playing field. Though the dual use charge in its present form does not reflect the present value of spectrum, it needed to be continued...”. It also implied that the situation is too complex for now, with various players at different levels of spectrum already.
It must be conceded that the regulator has signalled the need to use spectrum efficiently by suggesting higher pricing for those who exceed the 10MHz level. But the manner in which it persists with the allocation process may mean perverse outcomes.
A look at the revised criteria (of subscriber numbers) reveals that many leading incumbents in the metros and the top category Circle A won’t meet the benchmark for additional spectrum for a while. This is tantamount to an admission by Trai that the incumbents’ case of their urgent need for spectrum on subscriber basis doesn’t hold!
Further, Trai suggests allocation on first-come-first-served terms. There are roughly 140 operators today across all circles, plus around 22 players who have a licence, but no spectrum yet and 96 who are awaiting a licence. Given the shift in criteria and the likely waiting period before it comes into force, there will be confusion in the queuing. Company A, that got in first, gets a premium by sheer ownership of spectrum. And B, that happened to line up later, even if a more serious player, may well seek to buy out Company A simply because it got the spectrum.
The rational approach expected from the regulator was to halt the allocation process for now, take a few months to determine the terms of auctioning, and then let the highest bidders buy it. That way, the government could realize true value for the resource, while the telecom company values it correctly in its business plans. Instead, with the queue, that value gets transferred to the company who queued up first. In saying it did not wish to halt the allocation, Trai was short-sighted.
Finally, Trai’s suggestion for a panel of bureaucrats and interested parties, headed by a scientist (instead of an economist), to define the future allocation process is ironical. Pricing of a scarce resource is a problem for economic regulators to deal with through a consultative process. In passing the buck thus, Trai is reducing its own role.
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