Two years after Indian telecom companies bid a staggering Rs. 65,000 crore for air waves to launch third-generation cellular services like streaming video and high-speed data access, they are quoting gingerly for spectrum to carry voice traffic. Auctions for radio frequencies to carry the pedestrian variety of mobile services, better known as second-generation services, have not seen any of the telecom players bid for the most lucrative markets — Delhi and Mumbai, among others — 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 after an auction in 2008. The money in Indian telecom has shifted from voice to data and the industry sees little reason to bid up prices for services that are providing rapidly diminishing returns. The government, having ignored suggestions that benchmarking prices for 2G spectrum on the hugely successful 3G sale was not the most sensible thing to do, may have to review its position once the current round of auctioning is done.
Designing viable auctions is critical for a government that was ordered by the Supreme Court earlier this year to seek competitive bids for air waves in a ruling on irregular telecom licences allotted in 2008. Subsequently, the government has decided to charge a fee for all excess spectrum that came bundled with mobile telephony licences. The fee is to be discovered through the ongoing auction. The government, on its part, is relying on revenue from the sale of air waves — initially estimated at Rs. 40,000 crore in 2012-13 — to partly bridge the fiscal deficit. There is a lot riding on a successful auction. Incumbent operators Bharti Airtel, Vodafone and Idea Cellular are bidding for 2G spectrum, as are new players like Telenor and Videocon. A similar auction for the alternative code-division multiple access (CDMA) cellular technology found no bidders earlier in the month. The CDMA no-show left the government Rs. 7,000 crore short of its estimated revenue for the year, and the current auction for global system of mobile networks could widen the shortfall to Rs. 30,000 crore.
Mobile telephony is now available to most of India’s townspeople. The push is now to spread telecom to the countryside where a significant chunk of the population still is not hooked up. This is an extremely price-sensitive segment of the market and policymakers will do well to accept the bids that telecom companies are willing to make to extend their networks here. The 2G auctions ought to set a new price yardstick just as the 3G spectrum sales did.