India’s efforts to raise around Rs.30,000 crore from the sale of spectrum for second-generation (2G) telecom services came a cropper, with the auction ending in two days, and raising, for the government which hoped to use the money to help keep its fiscal deficit down to 5.3% of gross domestic product (GDP) in 2012-13, a mere Rs.9,407 crore.
The telecom minister has blamed the Supreme Court, which mandated that the Telecom Regulatory Authority of India set the reserve price for the auction, but given that the regulator’s recommendation of Rs.18,000 crore for 5Mhz was diluted to Rs.14,000 crore by a ministerial panel—even this, analysts and executives at telcos said, was too high—the argument doesn’t hold. The panel could have set a lower reserve price if it wanted to.
It didn’t for two reasons. One, it is evident that the government wanted to avoid a repeat of the 2G scam, where it was accused of giving licences and spectrum on favourable terms to some telcos. Two, it had come to see the telecom business in India as a sort of cash cow, and it desperately needs the money to fix its burgeoning deficit.
So, what can we learn from the flop show?
I see five lessons.
1. An auction may not be the best way to allot spectrum. The US discovered this after 3G spectrum auctions in the late 1990s, and, across the world, the experience with auctions to allot airwaves has been mixed.
2. There is such thing as too much competition. There were no takers for spectrum in Delhi and Mumbai, the two biggest mobile telephony markets in India. Reason? There are around eight telcos that compete for business in Delhi and 11 in Mumbai.
3. Maximizing government revenue may be a great objective for divestment deals where the government sells a minority stake in state-owned enterprises, but it is a poor one for spectrum auctions—not when telcos have realized how tough it is to make profits. In the case, unfortunately, this seemed the sole objective of the auction.
4. A regulatory overhang doesn’t bode well for business—even government business.
5. What about the vision? The government’s primary objective, through the 2000s, when it gave away spectrum in an ad hoc and unscientific manner, was to increase India’s teledensity. Its current objective should relate to increasing the penetration of data-rich wireless broadband services, and it should aim to use whatever money it generates by selling spectrum (in whichever way) to further that cause.