The decision on the reserve price of the 2G auction puts to rest any doubt that the days of cheap spectrum for mobile companies are over. Mobile companies would be disappointed. Consumers have less to fear in the short run.
The reserve price is now lower by a whopping 4,000 crores. This, though welcome, is still daunting for most players. For those who bid, the question of why high reserve prices were necessary in the first place remains unanswered. Why the schizophrenic distrust of auctions to discover a market price?
The decision clears the key unknowns for the forthcoming auction. However, it may be still be too late for the deadline of 31st August. Auctioneers are yet to be appointed and the process after that should take several weeks.
We must expect a few, if any, players to bid for pan-India spectrum. They would probably bid selectively for specific circles.
While details are still unavailable, the government is taking steps to ensure the auction attracts sufficient number of bidders. There are proposals to allow companies to pay in tranches and to mortgage spectrum to lenders. This will ease funding challenges.
The Telecom Regulatory Authority of India has underlined that spectrum costs are not as high a part of the companies outgo as the latter often imply. However, that still does not justify a high cost for a key input like spectrum. India’s companies pay the world’s highest government levies. Charging a spectrum fee and a substantial licence fee is a uniquely Indian aberration.
There has been a sharp fall in the prices of 3G services in recent weeks despite the humungous price paid for the spectrum. This makes it worse for companies. They cannot pass on the higher costs to consumers. This may not kill the companies but will hurt new investments, especially where new networks are urgently
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(The author is director of Com First (India) Pvt Ltd, a company specialising in telecom policy and regulation)