It is the government’s prerogative whether it uses auctions for these or other types of assignment. (Illustration by C R Sasikumar)
The 3G spectrum auction of 2010, held in the wake of the 2G scandal of 2008, was a blessing at the time, for it achieved two objectives for the beleaguered process of air wave assignment to telecom operators. One, it ensured transparency in the process of allocation of scarce spectrum and two, it resulted in a revenue windfall for the government. The auction Rs 67,718.95 crore as per the government. This was a massive amount, even if significantly less than the notional — and, if I might add, illusory — Rs 1,76,000 crore that was estimated as loss to the government by the then CAG, when spectrum was given away on a “first-come-first-served basis” (FCFS). Reams have been written about this. What was a blessing then, has turned into a curse now, but it is not my intention to delve into the past. Rather, the purpose is to argue that auctions, in the current format, are inimical to the sector’s growth and downstream competitiveness and that the historical lack of institutional integrity is adding to the challenge.
The year 2010 was a defining moment for Indian telecoms. Until then, spectrum was administratively assigned, and thereafter by auctions. The pre-2010 administrative assignment of spectrum suffered from a lack of transparency, favouritism and avoidable scandals. The Supreme Court thus ordered the government to auction spectrum for “all time to come”.
The phrase “all time to come” was not pronounced in a vacuum: It was in retaliation to the bitter political economy associated with administrative spectrum assignment, including the half-baked and bungled FCFS method. It was also a telling comment on the government’s incapability to assign spectrum transparently by any other method. Transparency is desirable for its own sake, and in a democracy like ours, its value multiplies manifold. Besides, if resources are to be generated in the process, these should go to government coffers, rather than unscrupulous individuals and private corporations, so that the money can be used for financing public goods.
No one could possibly quarrel with these arguments. Except that resources can be generated by means other than auctions. Think of toll roads that are coming up all over the country. Their existence has spawned businesses, generated tourism, and led to efficient transportation of goods to railways and ports. The income tax and GST revenue thus generated is also money for the government to spend on much-needed public goods. For telecoms, the backbone of Digital India, downstream competitiveness of user industries relies heavily on robust connectivity. Providing spectrum at a reasonable upfront fee to operators, thus helping firm-level efficiency and promoting competitiveness, would do what toll roads have done for the government. As the maxim goes, American roads are not good because America is rich, America is rich because American roads are good. That was the 1960s. Today’s carrier is digital infrastructure, of which spectrum is a vital input.
There are many dots (including DoT or the Department of Telecommunications) to be connected to even put this on the agenda for discussion. At the outset, the government will have to be amenable to giving up a bird in hand for many more later — just as investors do for long-term gains. Another consideration against auctions is that the revenue outcomes have been mixed. The direct and indirect opportunity costs of unsold spectrum due to high reserve prices have been steep. The auction regime worked well when demand exceeded supply, either genuinely or artificially engendered. It is quite revealing that 100 per cent of the spectrum was sold in only one of the seven auctions that have been held. That was in 2010, close on the heels of the 2G scam. Are auctions the only route to transparency?
On April 22, the DoT moved the Supreme Court to modify its 2012 order to allow administrative allocation of spectrum in select cases, where using the auction route is either not technically feasible or not desirable, such as for space and satellite applications. The recently-passed Telecom Act, 2023, specifies that only limited and narrowly-defined cases, including spectrum for BSNL, will be given on administrative basis. There are reportedly 19 such cases.
It is the government’s prerogative whether it uses auctions for these or other types of assignment. It could have easily arrogated to itself the power to assign spectrum in the best interest of the country in the Telecom Act, 2023. This is a policy decision and ought not to be subject to a Supreme Court decision from over a decade ago, which directed that all spectrum will be assigned by auction for all time to come.
Situations and market dynamics change and, hopefully, so do institutions. The DoT is giving itself the benefit of doubt that it can, under changed circumstances, assign spectrum through administrative procedures that will stand the test of transparency and legitimacy. Or it doesn’t wish to, and is taking aim from the Supreme Court’s burdened shoulders. Whatever route the assignment of spectrum takes, it is a policy decision and under normal circumstances ought to be decided by the policy maker — which is the DoT.
I recall a time when the newly-established Telecom Regulatory Authority of India (TRAI) was engaged in telecom tariff fixing, a power that it has to this day. It was 1998 and the regulator was involved with what was known as “tariff-rebalancing”, thereby reducing the cross subsidy from long distance to monthly rentals. This was necessary to attract competition and to keep the incumbent public sector undertaking, BSNL, afloat. Naturally, when competition arrives, the incumbent would lose market share and subscribers. That is inevitable. The CAG told TRAI that its actions were prejudicial to the revenue interest of the public sector and, as a consequence, overstepped into policy, beyond its audit function. This example is just for the purpose of illustrating the importance of specialists and expert bodies executing functions entrusted to them because these can have far-reaching implications. Thus, policy for the telecom sector is best left to TRAI and DoT; to auction or not to auction is a task given to them and they should be responsible for it and be made accountable.
The writer is dean, School of Humanities and Social Sciences and professor of Economics at the Shiv Nadar Institution of Eminence. Views are personal
