The successful conclusion of the 5G auctions on Monday has an important lesson for the government, which has long treated spectrum sales as a revenue-generating machine. Such an approach was fine in 2010 or even 2012, when spectrum was scarce and the number of operators quite high—as many as 10-12 in each circle. However, with the number of operators shrinking to just three post 2016, and the quantum of spectrum rising, there should have been a change in approach both by the government and the Telecom Regulatory Authority of India (Trai), which sets the reserve price for the auctions. It took the near bankruptcy of Vodafone Idea for the government to realise that sickness in the telecom sector could have a cascading effect. Not only foreign investors or banks, even significant government revenues were at stake—80% of Vodafone Idea’s dues are to the exchequer. The government’s move to come out with a relief package for the telcos in September 2021 was thus merited, and the auction results are proof of this. Apart from the Rs 1.5-trillion-plus that it was able to mop up, the fact that the premium 700 Mhz band spectrum, which did not find any takers in the previous two auctions, also got sold this time, is quite noteworthy. This shows that industry would respond favourably if the policies are realistic.
Two measures by the government deserve special mention here. The first was to provide a four-year moratorium to the operators on paying their large adjusted gross revenue (AGR) dues, which came about through the 2019 ruling of the Supreme Court. To this was added a moratorium running into equal number of years on the payment of annual instalments for spectrum bought in the past auctions. The second measure was the decision not to levy spectrum usage charge on airwaves bought in future auctions. While the first provided cash flow relief to the industry, the second lowered their expenses. The government’s move was aptly supplemented by the Trai, which not only lowered the reserve price by around 39% across bands, but also changed the methodology of arriving at the base price. No more were past auction prices used as the benchmark if the entire spectrum on sale in a given band didn’t get sold.
That 71% of all spectrum on offer got sold this time (against only 40% in the past two auctions in 2016 and 2021) certainly shows that the government does not lose out if policy measures are aimed at bringing a balance between the interests of exchequer, industry, and consumers. Despite two rounds of tariff-hikes by the operators, mobile voice and data rates continue to be low and have not adversely impacted the goals of Digital India. The minutes of voice usage and data consumption per user continues to grow. The government should now take two more steps to put the sector on the track to even higher growth. The first is to reduce the licence fee from the current 8% of the AGR. A move in this direction can be made by abolishing the 5% universal service obligation levy. The second measure should be that the current reserve price for spectrum bands is maintained for future auctions. Such a move would ensure that an annual auction calendar is maintained without any delays, and operators can plan their purchases without any surprises thrown in.
