Two years after telecom companies bid Rs. 65,000 crore for frequencies to launch third-generation cellular services like high-speed data, they quoted gingerly for spectrum to carry voice traffic earlier this month and the sale had to be called off. Auctions for radio frequencies to carry second-generation mobile services, did not see any telecom player bid for the most lucrative markets — Delhi and Mumbai — lending credence to an industry complaint that the government had set the reserve price too high. The base price of Rs. 14,000 crore for 5 megahertz of spectrum for a pan-India service is over seven times what companies paid in an auction in 2008. This price was arrived at by the Trai after the government felt its original recommendation of Rs. 18,000 crore was high. The regulator pared it down, but now says that if a more realistic price is to be discovered it will have to consult with stakeholders all over again.
The government has, by scrapping the latest auction, admitted it was wrong to peg the price of air waves that will carry voice traffic in the countryside to those that will carry more lucrative data in cities. But it now has to arrive at the right price for this slice of spectrum. Fiscal considerations and judicial directions should not come in the way of price discovery. The courts have ruled that auctions are better than any discretionary method of allotting a natural resource like radio frequency for telecommunications. They could be persuaded to take the broad view on delayed sales if auctions deliver the right price of a phone call in an extremely price-sensitive segment of the market.