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Finally, the right number

Spectrum auctions could make calling expensive. But Indians can live with it.

india Updated: May 09, 2012 01:14 IST

The telecom watchdog, tasked by the Supreme Court to come up with a mechanism for the auction of radio frequencies to cellular telecom companies, has helpfully come up with an estimate of how much extra each subscriber will end up paying. It works out to 3 paise per minute for those of us who use mobiles just to make calls. As more chunks of bandwidth go under the gavel — some of them used to support high-speed data networks — the cost of watching a live cricket match on a smart phone could go up substantially though. The telecom regulator estimates that the cost of mobile telephony could rise by as much as 10% if every megahertz of spectrum that came bundled with service licences, and some that are yet to be allotted, is sold to the highest bidder over the next decade. That does not look like a very high price in a nation with arguably the cheapest telephony in the world.

The courts have forced a bonanza on the government. Spectrum fees could fetch the exchequer a quarter of its current excise collection every year for the next decade without attracting the odium of a new tax. The court ruling on selling, as opposed to auctioning, spectrum has come at a juncture when India's 'cheap calls' argument had run its course with the number of cellphone users fast approaching the country's population. Mature telecom networks must seek extra rupees from data, and with cell phones getting smarter and cheaper, data services could emerge as the digital gateway for millions of Indians. The additional revenue telecom companies are eyeing, however, looked elusive as networks spread from cities to villages amid a bruising price war made possible by farming spectrum at throwaway rates. Now, operators cannot afford a price war after paying the market price for spectrum, but they still have to price services right. The government, for its part, has to come up with a realistic auction: price spectrum too low and bidders will collude, price it high and serious players will shy away.

A vibrant market for air waves will help shape the government's approach to other natural resources. The discretion inherent in making companies queue up for coal and iron ore needs to be drastically curtailed. Spectrum auctions, if conducted fairly, could light up the road for other stricken sectors like power and fertiliser companies. The telecom regulator has proposed that the end use of bundles of spectrum need no longer be set by the government if companies are willing to pay market prices. Similarly, the price signal could be used in the allocation of coal and natural gas. Spectrum auctions naturally hold the interest of a cross-section of industry, not merely the dozen-odd telecom companies.

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