Disconnected pricing

Auction shows 5G spectrum prices were too high

The closure of the much-awaited 5G spectrum auction marks an important technological leap for India. With this, the country is set to join the likes of the US, China, South Korea, the Philippines, Canada, the UK, and some others, which are already on the 5G map. This suggests that before the year ends, at least some big cities in India will experience mobile internet at 10 times the speed of 4G services. The 5G spectrum auction process has generated revenues of more than Rs 1.5 trillion, which is the highest so far in the eight auctions conducted since 2010. However, the latest auction has shortcomings and cannot be termed an outright success. It has failed to trigger a market-led price discovery, which is the essence of an auction. The entire bidding has been pegged at the level of the reserve or base price recommended by the Telecom Regulatory Authority of India and subsequently approved by the government. Even as the regulator had earlier this year lowered the 5G reserve price by 36 per cent from the level set in 2018, it remained steep, inhibiting telcos from buying more.

The silver lining of the latest auction is that the coveted 700 MHz band, which had remained unsold in the past two auctions, saw interest from a telco after its reserve price was lowered by 40 per cent. The overall high price explains why of the 72 GHz put on the block across 10 frequency bands, only about 51 GHz got sold. That left 30 per cent of the airwaves unsold. Even though spectrum auction is not meant to be an exercise to maximise government revenue, a more rational pricing would have resulted in a more fruitful auction process. In the end, of the Rs 4.3-trillion worth of spectrum on sale, government earnings were only a little over Rs 1.5 trillion for a 20-year duration. With telcos allowed to pay their spectrum money in 20 equal instalments, the government will get an estimated Rs 13,365 crore annually. In addition, telcos won’t have to pay any spectrum usage charge for 5G. While the Union Budget doesn’t have any spectrum auction target, its telecom revenue estimate for the current fiscal year is Rs 52,806 crore.   
 

In terms of competition, it was rather quiet with the 5G bidding done and dusted in a single day. The remaining six days were inconsequential in the bigger picture related to the ambitious 5G auction as the contest shifted to buying 4G and that too in a concentrated circle of Uttar Pradesh East. Besides the three incumbents — Reliance Jio, Bharti Airtel and Vodafone Idea — there was only one new entrant, Adani Enterprises, which kept its telecom entry small and ambiguous. Reliance Jio has emerged the winner in these auctions, but 5G shouldn’t mean another round of disruption for a sector that is still in distress. Globally, 5G has not resulted in an upside to the revenue in the initial years, and telcos in India should learn from that experience to keep their books in shape. The challenge before the telcos is limited use cases and competition with tech firms which would get 5G spectrum for captive or internal use at a nominal price. Also, a large majority of India is still using low-cost phones and a transition to 5G may mean bankrolling the ecosystem.