Spectrum Pricing and Health of Telecom Sector

The Digital Communications Commission under the Department of Telecommunications had sought a review of the Telecom Regulatory Authority of India (TRAI) August 2018 recommendations on the auction of spectrum.

Due to concerns over the financial health of telcos, and worries that demand for spectrum is likely to be muted as consolidation in the sector has effectively left only three private telecom service providers, the Digital Communications Commission has sought the review of its earlier recommendations from TRAI.

The TRAI has reiterated its stance on the issue of spectrum pricing, including that of 5G stating that all relevant factors, such as the methodology, assumptions, as well as developments between the spectrum auction held on October 2016 and its recommendations, released in August 2018, have been considered.

Revenue Maximization and Health of Telecom Sector

Over the past few years, the revenue from the spectrum auctions has been a major source of revenue for the government. At this juncture when the government is struggling to meet its revenue targets, higher proceeds from spectrum auctions will provide the much-needed boost to government coffers. But this temptation has to be resisted in the interest of the health of the telecom sector.

Aggressive bidding during the 2010 3G spectrum auctions had a disastrous impact on the financial health of the telecom sector which resulted in piling up of debts. This led to telcos exercising restraint in the 2016 spectrum sale, with the government realising only Rs 65,789 crore as revenue against Rs 5.63 trillion (base price) worth of spectrum that had been put up for sale.

The price war with the entry of a new player has further deteriorated the health of the sector. As a result, cash-strapped operators will find it difficult to bid, without sinking even more into debt. Then the telcos would be left with fewer resources to invest in towers and fibre optics.

Therefore Ministry of Telecom has set up a panel to rationalise levies, and to look into other issues. The government must think carefully through the implications of the recommendations, before rushing to auction high-priced spectrum.