Why spectrum auction was a failure?

The recent spectrum auction was a failure as 60 per cent of airwaves witnessed no bidding and the government collected only 11.6 percent of the total spectrum reserve price of Rs 5.66 lakh crores.

The government sold 965 MHz out of 2,354.75 MHz i.e. only 41 percent of the total spectrum. On the other hand, India’s telecom spectrum auction closed within 5 days and the government collected a total of Rs 65,789.2 crores i.e. 11.62 percent of the total reserve price.

The failure of recent spectrum auction was due to high reserve price for 700 MHz, 700 MHz spectrum band contributing the largest chunk of spectrum where more than seven bands of spectrum (700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz, and 2,500 MHz) i.e. 32.69 percent of the total spectrum and lukewarm response from operators for 2,300 MHz.

Speaking on the spectrum auction, Prashant Singhal, global telecom leader, EY, said, “With 60 per cent airwaves witnessing no bidding, the muted response is indicative of operators’ reluctance to invest heavily at current market prices. The data play is on the rise, and traction in bands vis-a-vis 1,800 MHz, 2,300 MHz, including the under developed 2,500 MHz, which will be used for deployment of 4G; is an indication that operators are filling their network coverage gaps for a wider footprint and augmenting capacities.”

“Intent to increase the 4G play exists, however, current valuations do not justify the expected rate of returns due to which bidding was restricted to very low premiums over base price,” added Singhal. COAI said that the tepid response to spectrum in 700 MHz is owed to a high reserve price. The lack of enthusiasm was majorly due to its unrealistic pricing, high debt and single-digit growth that the industry is currently reeling under.

Rajan S Mathews, director general, COAI, said, “In fact, the financial strain on the industry and a high reserve price are the major reasons why the 700 MHz band did not attract bidders.” “We are hopeful the government and the DoT will take cognizance of the role a high reserve price had on bidding, as far as the 700 MHz is concerned, and will recalibrate the price so that spectrum in the band could be put up for auction, maybe two years from now,” added Mathews.

The five-day auction, which made spectrum available in abundance in all spectrum bands has set the stage for the industry to work closely to roll out networks and services that provide best in class services to consumers.

DS Rawat, MD and CEO, Bharti Infratel said, “We believe that this auction will significantly speed up rollout of mobile broadband in the country, besides adding new technologies to augment capacities to cater to the rapidly rising demand for data services. Post this auction, we hope to see acceleration of 3G and 4G network rollouts by the telecom players, and at Bharti Infratel we are well positioned to address the demand.”

With the spectrum auction now completing the operators should focus on rolling out high speed data network so that India can be digitally empowered and consumers can benefit. On the other hand, the government should do a rethink on 700 MHz pricing and also need to closely watch the vendor eco-system for 700 MHz before doing the next spectrum auction.

Pravin Prashant pravin@varindia.com