Death of Spectrum Auctions

The SC's AGR judgment of 24th Oct 2019 and its subsequent orders on this issue, has threatened the competitive dynamics of the market by driving Vodafone Idea to the brink of bankruptcy. This has a huge implication on the viability of future spectrum auctions. As it might (high probability) convert the process of "auction" virtually into "administrative assignment", thereby making "spectrum auctions" totally useless in realizing its objective of discovering the "market price of spectrum". The symptoms of which were already visible in the past , as in most auctions (except the initial ones), the spectrum is sold @ reserve price and with large amounts left unsold .

DoT's Options

DoT has no other option but to assign spectrum through auction. As it is bound by the SC's Judgment 2nd Feb 2012 reproduced as under (page 93 clause iii).

"Keeping in view the decision taken by the Central Government in 2011, TRAI shall make fresh recommendations for grant of license and allocation of spectrum in 2G band in 22 Service Areas by auction, as was done for allocation of spectrum in the 3G band."

Though DoT did file a special reference under article 143(1) on 12th April 2012, however, the same got responded by the SC on 27th Sept 2012 by only on the limited question of allocation of natural resources barring spectrum dealt with in the 2G case. The relevant extracts from the judgment are reproduced as under (Clause 62, Page 70).

"We are, therefore, of the view that as long as the decision with respect to the allocation of spectrum licenses is untouched, this Court is within its jurisdiction to evaluate and clarify the ratio of the judgment in the 2G Case."

DoT's Conundrum

DoT will now have a very difficult situation at hand compared to the past. As earlier, due to competitive dynamics and artificial scarcity of spectrum, the operators were forced to bid higher numbers, and DoT/TRAI happily mark those bids as reserve prices for future auctions - leading to a large quantum of spectrum lying unused in the follow-up auctions. Now if DoT/TRAI decides to keep the reserve prices high, then in all probability, either spectrum will remain unsold, or only a fraction will be taken (due to the availability of limited funds). This will be detrimental to the interest of all stakeholders - consumers, operators, and government. If DoT keeps the reserve price low, it will be accused of causing "loss to the exchequer". But it will be very difficult for the DOT to reduce the reserve price; given the remaining players (with VI weakened) are not compelled to bid as they are no longer face competitive pressure.

Conclusion

Therefore the SC judgment on AGR, along with DoT's past actions of keeping reserve prices high, has virtually caused the Death of Spectrum Auctions, as the process will inadvertently get converted into an administrative assignment at the reserve price set by DOT. As with the loss of competitive dynamics of the market, DoT will no longer be able to monetize spectrum as it used to do in the past. This is bad for all. To the consumer, it will be poor services (in capacity and coverage). To the operators, it will be a lack of flexibility in its ability to harness the potential of technology. To the government, it will be loads of spectrum laying waste and a lack of ability to monetize it. In nutshell, it is a lose-lose proposition for all.

(Views expressed are of my own and do not reflect that of my employer)

PS: Find the list of other?relevant articles? in the embedded link.