Pragmatic way forward

Government must avoid further complications in telecom

On Monday, the Telecom Regulatory Authority of India, or Trai, took an important step forward in restoring health to the troubled sector it regulates. It proposed that, for the third attempt at auctioning 2G spectrum in the 1,800 megahertz band, the reserve or base price be reduced sharply. Whereas in the last auction the base price was Rs 2,379 crore per MHz of nationwide spectrum, it is now proposed that it be Rs 1,496 crore per MHz, a 37 per cent reduction. Also, in the three major metropolitan circles where licences are up for renewal in the more efficient and desirable 900 MHz band - Delhi, Mumbai and Kolkata - Trai slashed the reserve price by as much as 60 per cent. This is 70 per cent lower than the price discovered in the 3G auction a few years ago, and for much more efficient spectrum than 2,100 MHz.

The regulator presumably believes it has been forced to lower reserve prices because of the lukewarm response to the earlier auction. In another concession to telecommunication companies, it has permitted the trading of spectrum that has been fairly obtained. This is a very important step towards better price discovery and a well-functioning market. It is not enough, however, to please GSM operators, which want the reserve price to be even lower, at Rs 1,000 crore per MHz. Others say that some of the reserve prices are too low - after all, a low price for spectrum in Delhi and Mumbai means that those who paid much more for, say, circles in interior Maharashtra in the earlier spectrum can justifiably complain that there is no level playing field.

However, it is certain that no move forward could please everybody. Conflicting regulations, political corruption and cronyism, obdurate companies and sharp public criticism have all left their mark on the sector, and recovering from it is not easy. The ministry and the regulator have erred in the past in failing to build a level playing field for various companies. This error was compounded by the actions of former telecom minister A Raja, who stands accused of twisting the regulations to benefit favoured players. Irrational exuberance led telecom companies to overpay for 3G spectrum, raising the debt burden of the sector. And the high 3G prices fed unrealistic estimates of "presumed losses" through non-auction assignments, which in turn led to the high reserve prices of previous auctions. The consequences of high prices and high debt - the fault of both the private sector and the government - are clear: India has an overcrowded telecom sector, which nevertheless has failed to roll out better services in the time frame that was expected. Many years after the 3G auction, high-bandwidth services are yet to take off, although there is considerable latent demand.

Trai has, thus, done the pragmatic thing and moved forward with cheaper prices. It is true that the confusion reveals that even auction processes are not a panacea for all problems, especially in the presence of unrealistic growth assumptions and covert communication between competitors. However, Trai's recommendations make the best of a bad situation. Although neither industry nor those who insist the state must maximise revenue from such sources will be happy, the government must move forward on their orderly implementation.