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A convergence of interests

The Supreme Court’s 2G ruling to the government to auction all the spectrum bundled with the licences that were cancelled will reduce scarcity-induced higher bids and help in finding the correct price for spectrum.

india Updated: Feb 15, 2013 22:21 IST

The Supreme Court directive asking telecom companies that have not got spectrum auctioned since 122 licences were scrapped last year to stop services forthwith continues with the judiciary’s pursuit of market-determined prices for air waves.

Price discovery is not served if a section of bidders stays away. It is incumbent on the government to design a viable auction mechanism that draws the widest possible participation.

The November auction of spectrum witnessed lacklustre bidding in some of the most lucrative telecom circles in India and the government has since had an opportunity to review the reserve prices.

The second attempt, scheduled for March, ought to incorporate the operators’ complaint that the reserve prices in some segments of the telecom market were unrealistically high.

Friday’s court ruling also ties up a third loose end in the sale of radio frequencies for mobile telephony. The directive to the government to auction all the spectrum bundled with the licences that were cancelled will reduce scarcity-induced higher bids.

A gush of air waves available at one go should stabilise their prices.

The follow-up ruling sends out a clear message to foreign investors that courts will be keeping a close watch on India’s telecom policy until it emerges from its tainted past.

So far, the government has managed to convince countries we have investment protection treaties with that their exposure to India is safe.

Of the three major foreign telecom companies that were affected by the cancelled licences, only Emirates Telecommunication has wound up its Indian operations. Norway’s Telenor wants another go at the market after parting ways with its original partner Unitech.

And Prime Minister Manmohan Singh is understood to have addressed concerns of Russian President Vladimir Putin about Sistema’s investments during the latter’s visit in December. Similarly, Indian players, including incumbents and serious entrants, have retooled to the new regime and have bid for spectrum where needed.

The courts and the government have independently come to the conclusion that auctions are the most efficient and transparent method to allocate spectrum. The telecom regulator has also weighed in with its assessment that the sale of radio frequencies will not burden the consumer.

There is thus a convergence of interests to make auctions work. Once a template is in place, India will have made a policy switch that should keep the telecom story going for a while longer. An energy-deficient nation’s need for a telecommunications backbone cannot be underemphasised.

Add to that the need for a less leaky welfare pipeline and universal telephony becomes a necessary condition for India’s development.