There are three major objectives behind the spectrum auction scheduled for February. One, to discover the price of airwaves and maximise revenue for the government so as to reduce the fiscal deficit to the extent possible; two, to provide enough spectrum to cellular operators who have been crying hoarse over shortage of spectrum; three, to improve the worsening quality of service to the consumer.
In the long-term interest of the consumer, the sector and the government, the latter has to ensure none of them is short-changed. However, that's not the reality on the ground. Rather, it appears the government is working at cross-purposes.
First, by sticking to its stand to charge a substantially higher floor price for spectrum auctions than the bidders would have liked, the government has sent out a clear message of revenue maximisation. But at the same time, by offering just 5 MHz spectrum - instead of the 15 MHz that the defence ministry is vacating in the 2100 MHz band - it will also lose potential revenue. The move goes against the target of providing adequate spectrum to telecom companies and will surely not improve services to the consumer.
Telecom companies are required to pay 25 per cent upfront for all bands (except for 1800 MHz where they are required to pay 33 per cent right away). Hence, around Rs 25,000 crore is expected to flow into the government's kitty before 2014/15 ends. Any premium it receives over and above the floor price will proportionally get added to this kitty.
Secondly, operators and consultants alike have been demanding a lower floor price saying very high valuation will harm their debt- laden balance sheets. They have been attacking the government for what they call the government's attempt to kill the goose that laid the golden egg. The reality is to the contrary. Ever since telcos raised tariffs in the middle of 2014, their financials have been improving every quarter.
Unless the Reliance Jio 4G offerings - which have been deferred year after year -are hugely disruptive on pricing to force a price war, domestic telcos will continue to report healthier balance sheets in the years to come. That justifies the government's decision of a higher floor price.
However, one of the biggest mysteries of the upcoming auction is the government's move to offer only 5 MHz of spectrum in the 2100 MHz band meant for 3G even though the defence ministry has agreed to vacate 15 MHz of spectrum in that band.
Meanwhile, the industry is hoping against hope that the Telecom Regulatory Authority of India (Trai) will stick to its stance of pricing the 3G spectrum in the 2100 MHz at Rs 2,720 crore as it had recommended earlier. The inter-ministerial telecom commission had asked Trai to reconsider its suggestion. Even if Trai sticks to its previous recommendations, it's likely the DoT and the Telecom Commission will override the recommendation to propose a valuation closer to what has been suggested for the 2G bands.
Perhaps, the spectrum-related decisions could do with better cohesiveness.
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