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Are we back to square one?

As Trai says it cannot review its decisions, the spectrum auction process will be delayed.

india Updated: Nov 26, 2012 23:34 IST

The saga of auction of radio frequencies for mobile telephony in India has taken yet another undesirable turn with the telecommunications regulator indicating that it cannot be expected to arrive at a new set of reserve prices in time to resume the process this financial year. 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 irregular 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. Now with the Telecom Regulatory Authority of India (Trai) pointing out that the rules do not permit it to review its decisions, under advice from the government, more than once, the watchdog will have to start work on arriving at the reserve price from scratch. The process is likely to overshoot the court-stipulated schedule for auctioning tainted spectrum as well as the government’s revenue-mobilisation efforts for this year.

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.