Analysing spectrum auction

News: Recently, Cabinet has approved the much-awaited airwave auction for ultra-fast mobile internet networks. With this, India is set to join the league of 5G-enabled nations.

What is 5G technology?
Read here: 5G technology
What are the benefits of 5G technology?
Must read: 5G Impact: Traffic To Teaching, Factories To Farming
What is a Spectrum Auction?

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What are the key factors responsible for the Spectrum Auctions?

Reserve price: The reserve price significantly and positively correlates with the winning bid price. However, a higher reserve price also inhibits bidders from bidding for more spectrum blocks, resulting in lower amounts of spectrum sold.

If the quantity effect is more than the price effect, it results in reduced revenues for the government exchequer.

Position of telcos vis-à-vis Over The Top providers: The willingness to pay by the telcos depends on their position vis-à-vis Over The Top providers who are providing substitute services such as Voice Over Internet Protocol.

The number of bidders: Reserve price and the number of bidders in the auction have a positive effect on the auction. The number of bidders was reduced from seven in 2016 to three now.

What are the incentives for bidders in present spectrum auctions?

a) Abolition of annual spectrum usage charges for all spectrum procured in this auction and the deferred payment option incentivise bidders to be active in the auction. b) TRAI in its April 2022 recommendation reduced the spectrum reserve price by more than 35% from its 2018 level.

What are the concerns associated with the spectrum auctions?

Firstly, Government’s decision to set the reserve price for the spectrum based on the regulator’s recommendations reveals a prioritisation of revenue over the industry’s long-term health.

Secondly, Telecom sector is facing heavy financial stress that has shrunk the sector to a near duopoly. This forced the surviving operators to resort to tariff increases to protect their viability and ability to make future investments. At this time, even though the government provided an annual pay-out of the licence fee over a 20-year term, the price is still high.

Thirdly, 5G technologies such as machine-to-machine communication, smart grids and autonomous vehicles are still in infancy even in advanced economies. These technologies are some years away from scale-based economic viability. So, the service providers will take an ultra-cautious approach both to bidding for spectrum and in rolling out services.

Fourthly, Captive Non-Public Networks undermine the economics of traditional telcos.

India must be conscious of the challenges and opportunities of 5G services, and ensure that the technology caters to the largest sections of the population.

Source: The post is based on the following articles“Analysing spectrum auction” published in “The Hindu” on 22nd June 2022.

“Progress without limits” published in “The Hindu” on 22nd June 2022.

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