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How to optimize 5G auctions in a better way

The current model of spectrum use, in which each telecom operator acquires long leases on spectrum for dedicated use by itself, is inefficient, both in terms of spectrum use and in terms of use of capital. Photo: BloombergPremium
The current model of spectrum use, in which each telecom operator acquires long leases on spectrum for dedicated use by itself, is inefficient, both in terms of spectrum use and in terms of use of capital. Photo: Bloomberg

  • The government should remove restriction on eligibility to take part in spectrum auctions for telecom operators and would-be operators, and encourage telecom tower companies, infrastructure investment trusts, pension funds, insurers, and others to take part in the auction

The government is gearing up to auction one hundred thousand MHz of spectrum and expecting to receive 75 trillion. Telecom operators complain the government’s price expectations are still too high, even after the government has dropped its floor price for certain bands by 35-40%. Even as telecom operators and the government haggle over how much lower base prices for 5G spectrum auctions can go, it is possible to think of reorganizing the way spectrum is allocated and used that would leave every stakeholder better off. Here is one suggestion.

The government should remove the restriction on eligibility to take part in spectrum auctions for telecom operators and would-be operators, and encourage telecom tower companies, infrastructure investment trusts, pension funds, insurance companies, private equity funds and others who manage large pools of investible capital to take part in the auctions. It should, simultaneously, free up the regime of spectrum trading and leasing, so that buying, selling and leasing of spectrum any number of times for any duration of time would cease to be constrained by policy and regulation. The result would be to open up a new income stream for the likes of pension funds, maximize the take for the government, minimize the capital locked up in spectrum for operations by telecom companies, and, optimal utilization of spectrum.

After all, the goal of auctioning spectrum is to make the spectrum available to telecom operators, have a fair, objective yardstick for allocating spectrum among alternate claimants to the spectrum and obtain as much revenue as can be had for the government from assigning telecom operators the spectrum they need. These goals would be met from the model we suggest.

The current model of spectrum use, in which each telecom operator acquires long leases on spectrum for dedicated use by itself, is inefficient, both in terms of spectrum use and in terms of use of capital. Further, it is technologically obsolete, with the arrival of capability in both handsets and base stations to hop spectrum bands and utilize whatever band is available.

What could be the arguments against such opening up of the market for spectrum? One could be that telecom operators might find themselves without spectrum when they need it. There are two reasons why this is unlikely. The only way a bulk holder of spectrum can generate revenue is to lease it or sell it to a telecom operator. Holding on to the spectrum would only lose revenue for the spectrum holder, particularly when it competes for custom with other spectrum holders. Further, the secondary market for spectrum could be regulated to guard against hoarding and to ensure fair competition.

Another possibility is that the government could lose revenue. This is unlikely. Participation in the spectrum auction is being widened, rather than constricted, by adding spectrum holding and leasing companies to potential bidders. If a telecom company wanted to bid as much as it planned to in the old model, nothing prevents it from putting forth such bids.

The third possible negative is that the frequent trading and leasing of spectrum could push up spectrum costs for the telco and therefore, for the consumer. This, too, is unlikely. For one, telcos are being spared sunk capital costs in the acquisition of a dedicated spectrum. Further, by allowing a continuously variable choice of spectrum bands for use by telcos, utilization of spectrum would go up, and that would lower the cost of spectrum use per call or bit of data transfer.

Another possible argument is the loss of sovereign control over spectrum, should the successful bidders for spectrum have financial participation by foreign capital. This is a meaningless worry, as the spectrum available in India cannot be physically transported anywhere, and will always be available for use in India. India needs to have a legal framework that ensures its continuous deployment, that is all.

Would handsets and base station telecom kits that permit spectrum hopping, deploying technologies called cognitive radio and software-defined radio, be more expensive than conventional handsets? This is a worry that does not take into account the drop in price of handsets by a factor of 10 or more, in the case of feature phones over time, as technology evolved and smarter phones came into being. The same sort of technological evolution and adoption can be expected to take place with equipment embodying new technologies. The mass-market, permitting economies of scale, and constant evolution of technology would combine, in a framework of intense competition among telecom equipment and handset makers, to reduce the cost of handsets and other hardware.

If all this were truly viable, why haven’t other countries already adopted such a paradigm shift? There is no reason why India should not be a pioneer in business processes and business models. From process innovation in drugs to the outsourcing of telecom infrastructure services, freeing up telcos to focus on operations, branding and customer service, India has pioneered new ways of doing business. The point is to shed needless inhibitions and seize the day.

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