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Policy & Regulation
Spectrum auction fiasco: DoT should come out of denial mode and introspect
Manoj Gairola |  |  10 Oct 2016

The latest Spectrum auction has failed. More than 60% of the Spectrum that was put on block remains unsold. The government could get only Rs 65,000 crore as against expected Rs 5.6 lakh crore. Out of the Rs 65,000 crore, less than 50% will come in this fiscal.

The fact that the finance ministry’s fiscal deficit targets have gone haywire clearly indicates that PMO would not be happy with the way auction was conducted. During this fiscal, the government would get only about Rs 32,000 crore, half of the Rs 64,000 crore it had budgeted from Spectrum sale. Now, it will have to raise additional Rs 32000 crore to meet the fiscal deficit target of 3.5 per cent of gross domestic product (GDP) for 2016-17.

The officials of the department of telecommunications (DoT) claim that the auction was successful as spectrum was sold in a transparent manner. Do the officials want to say that they were capable of selling Spectrum in a non-transparent manner? Does it mean that the earlier auctions were non-transparent? If DoT wants to make future auctions successful, it will have to come out of denial mode. It should accept that this auction has failed miserably.

Success of auction depends on primarily two things – demand and supply gap of a commodity (Spectrum) and the way it is conducted.

Spectrum is a scarce natural resource that is always in demand. With launch of Reliance Jio services, demand for Spectrum should have peaked up. Reliance Jio is offering 4G services that require huge spectrum and an efficient network. In last one year, market leader Airtel has bought Spectrum from Videocon and Aircel at a price much higher than the reserve price set up in this auction.

Vodafone and Idea should have bought huge amount of Spectrum to improve quality of services and offer 4G so that they can compete with Jio and Airtel, which has improved its services in last one year. However, they have bought bare minimum Spectrum just enough for being present as 4G player in all the circles.

DoT should introspect what went wrong? Whether it was the reserve price of Spectrum or the timing of Spectrum or there are some other factors.

Telecom guru B K Syngal has an interesting view on Spectrum auctions. He points out that the auctions are conducted to determine market driven price of a scarce natural resource. Hence, Spectrum auction can be considered equivalent to the public issue (listing of a Share). During a public issue, if an organization issues a statement that can have an impact on share price it would tantamount to insider trading. That is why there is silent period that starts two weeks before the actual launch of public issue and is enforced during the entire period of the issue. There are set rules for this all over the world. In formulating guidelines for the Spectrum auction, the government should have followed the practices of Stock exchanges.

Whenever the government announces Spectrum auction, big Consulting firms start claiming that the Spectrum prices are high and they start comparing India with countries that are 1/100th of its size. This helps in creating a scenario where the prices get hammered down. This practice should be stopped.

It is important that the DoT should come out of denial mode and start introspecting what went wrong. Only then future auctions will be successful.

    
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10 Oct 2016(IST)  
Comment
I disagree that "The latest Spectrum auction has failed." Nearly all analysts agree that companies like Bharti and Idea are facing serious issues with their balance sheets. Vodafone had to pump $7B in Vodafone India. They didn't have the cash to bid much more. They couldn't have afforded to spend more unless the spectrum went for giveaway prices. The Indian telcos are struggling to finance the buildout on the spectrum they have bought; it would be impractical for them to additionally support the 700 MHz band. The financially stretched companies would have had to spend $biliions for spectrum they would barely use for years. They can spend their limits funds on building today's networks. In two to four years, the companies should be ready to put the spectrum to use. The government can expect a much better return. The shortfall is an issue for this year's budget, but likely more than made up in a few years. Dave Burstein
Posted By :- Dave Burstein
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