Telecommunications operator Vodafone has objected to being forced to bid for spectrum after the government issued guidelines earlier this month for auction of radio frequencies to carry second-generation services. An earlier round of auctions in November did not receive bids from telecom companies for lucrative markets like Mumbai, Delhi, Karnataka and Rajasthan and the Centre had to lower the reserve price in these circles by 30%. The sale of spectrum is critical to a government that was ordered by the Supreme Court earlier this year to seek competitive bids for air waves in a ruling on irregularities in telecom licences allotted in 2008. The government, on its part, is relying on revenue from spectrum sales - initially estimated at Rs. 40,000 crore in 2012-13 - to partly bridge the fiscal deficit. The November sale had fetched less than Rs. 10,000 crore.
The Cabinet decision to make incumbent operators bid for spectrum is an effort to broadbase the auction and ensure better price discovery. For licences due to be renewed in 2014, like Vodafone's, these mobile service providers are assured of 2.5 MHz in the 900 MHz band and a licence to operate in the 1,800 MHz band if they participate in the auction. Vodafone finds this condition coercive. It contends that it belongs to a separate class of operators and should not be treated like a new entrant or an existing licencee seeking additional spectrum. This argument is weak in light of the new policy to re-farm all radio frequencies issued so far as and when telecom permits come up for renewal. Since this will apply to all incumbent service providers, the government is on strong ground in seeking mandatory participation. Vodafone's other contention - that the price discovered through "forced" bidding will be artificially inflated - does not hold if spectrum is to be re-farmed at market rates.
The government has, by lowering the reserve price in circles that did not receive any bids, accepted that its revenue projections from spectrum sales were optimistic. Telecom policy in India has undergone a fundamental switch in 2012 and the government is feeling its way to come up with the right mechanism to sell radio frequencies. Designing viable auctions is critical to the growth of mobile telephony in the country and some policy tweaks will be unavoidable. As long as there is no bias in the new rules, they are unobjectionable. India's courts have ruled that auctions are better than any discretionary method of allotting a natural resource like radio frequency for telecommunications. The government is tasked with making the process fair and transparent for all stakeholders. Telecom policy is facing unprecedented public scrutiny and claims of victimisation must be made with utmost care.