Steps needed to make spectrum Auction successful

Context: Government should take lessons from 2016 spectrum auction failure and take steps to get the present auction right.

Discuss the parameters on the auction of radio spectrum.

  • A new round of auction has been cleared by government to be held using the methodology of Simultaneous Multiple Round Ascending (SMRA) after 4 years.
  • The Telecom Regulatory Authority of India recommended the auction spectrum in the sub-GHz bands of 700, 800 and 900 MHz along with mid-band frequencies in bands of 1800, 2100, 2300, and 2500 MHz across the 22 Licensed Service Areas (LSAs) of the country.
  • The total spectrum to be auctioned is about 2,251 MHz. The potential revenue growth to the government at reserve prices is about $50 billion. Total reserve price of spectrum put on auction in 2016 was about $90 billion.

What are the factors that determine the success of spectrum auction?

  • Firstly, the reserve price. Cross country spectrum database shows that the reserve price is positively correlated to the winning bid price. However, a higher reserve price also stops bidders from bidding for more spectrum blocks, resulting in lower amounts of spectrum sold as happened in 2016.
  • Secondly, Factor of VoIP subscribers. Over The Top (OTT) providers are providing substitute goods such as Voice Over Internet Protocol (VoIP) and are capturing a greater mind share of customers while remaining somewhat invisible to government regulators.
    • The scraping away of the position of telcos in front of OTTs would impact their relationship in the overall digital value network of devices, connectivity and apps, that could result in a lower willingness to pay.
  • Third, allocation of unlicensed spectrum for Wi-Fi. Wi-Fi shared the load of carrier network and reduces the demand for mobile network capacity. If government want to expand the Wi-Fi facilities, it needs to keep more spectrum unlicensed. The more the unlicensed spectrum allocation, the lower will be the demand for licensed spectrum.
  • Fourth, visibility of spectrum that will be up for auction. The amount of spectrum for 5G auction (namely 3.4-3.6 GHz) that will be made available by the government in late 2021 is not clear. It is creating a confusion among companies, should they acquire the spectrum now, or wait for subsequent auctions.
  • Fifth, reserve prices of different bands for the forthcoming auction as recommended by TRAI indicate that the average price per MHz per population (a common metric used for comparing spectrum prices) is around $3 for sub-GHz band and $1.70 for mid-band.

What are the key steps to get the auction right?

As Spectrum is a perishable scarce resource and lose its value if left unused, it is important for the government to ensure that the spectrum put on the block is sold successfully, unlike 2016. Therefore, following steps are recommended before the auction begins:

  • First, Government should recheck reserve prices and consider reducing it further, especially of the “golden band” or 700 MHz band, which is important for covering the surrounding areas of the country.
  • Secondly, Government should release more unlicensed spectrum in 2.4/5/60 GHz for multiplying Wi-Fi as a suitable supplement to the carrier network. This will increase the placements of the Public Wi-Fi project which got the approval of cabinet recently.
  • Thirdly government should provide clarity about future auctions, especially the major chunks of spectrum that can be put on the block in 3.3/3.6/26/28 GHz.
  • Lastly, government should release guidelines on how they will regulate the auctions and what will be regulated so that the telcos and OTTs can join hands to provide superior and better services for the benefit of the consumers.
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