Spectrum auction: Revenue collection mustn't sole aim

To ease pressure on telecom firms, upcoming spectrum auction should try to balance transparency in allocation and revenue expectations for the government, said a report.

‘Evaluating Spectrum Auctions in India’ prepared by Broadband India Forum (BIF), in association with Indian Council for Research on International Economic Relations (ICRIER) recommended relook at auction design including spectrum pricing methodologies that primarily rely on reserve prices for successful outcomes.

“Telecom Regulatory Authority of India (TRAI) methodology of calculating reserve price does not rely much on fresh valuation of spectrum. In 18 out of 22 circles, the reserve price of spectrum is based on last auction price duly indexed. As per the DoT ( Department of Telecom) norms, the price can be based on last auction if it has happened within a frame of 1 year. Hence, the price should not be referenced to the last auction. The reserve prices are way higher than international norms,'' said the report.

“Setting high reserve prices could actually be counterproductive. It could reduce government revenue and stifle sector growth. Building trust between operators and government is crucial for long-run viability of the sector,” Rajat Kathuria, Director and Chief Executive, ICRIER, said while releasing the report.

The report recommended that “Marginal Cost of Funds based Lending Rate (MCLR) is not ideal for the purpose of indexing. While a telecom price index is not available for India, the consumer price index (CPI) could be used as proxy. Alternatively, TRAI could consider studying price effects in the telecom sector. Ofcom, UK extensively researches on pricing trends for communication services using data on consumer preferences, usage levels, contract lengths, promotional prices, etc.”

The over-reliance on reserve prices may not necessarily yield successful market outcomes. There are several other factors that influence auction outcomes such as bidder turnouts, market conditions and choice of auctioning agent, said the report.