How resources are allocated in an economy is important in how well it performs. The great debate over central schemes versus market mechanisms of the last century, however, was so pervasive that sector-specific matters tended to get lost with lingering influence. As India prepares for another round of spectrum allocation to telecom operators, let’s look at two ‘curses’ that may add to the country’s quest for overall price maximisation. Take the ‘resource curse’. This can affect an economy that is scarce with something like oil, in such heavy global demand that it forces its currency, other exports out of world markets, and thus allows a large earner to dominate. Is. Resolving this may require an exchange rate peg, which has its own risks of rigidity. We do not face such problem, it is evident in the diversified economy of India. A plentiful resource, however, can suffer another type of distortion if internalized by state interference. The usual culprit is the ‘winner’s curse’, which falls on winning bids for auctions that get whispers for buck instead of bangs.
Over the past two decades or more, the Indian telecom sector has been plagued by all sorts of policy-flops and worse-case scenarios, but its increased cost base is a drag that can still be mitigated. Like air corridors for aviation, airwaves for telecommunications services are a public resource that costs the state almost nothing to either keep or deliver. Still, spectrum is expensive. The main reason is a government addiction to an unexpected source of revenue. It was not a policy call, but a judicial directive in 2013 that led to the auction of airwave-frequency bands. Huge bids were filled in the state treasury at the expense of the operators. And with tariffs stymied by a retail price war that broke out in 2016, topped by an extractive court ruling in 2019, even efficiently-run businesses began to falter. The Center had recently offered a relief package. If that was welcome, there is Monday’s respite from India’s telecom regulator. For upcoming airwave bids, it has proposed setting a reserve price 36% lower than what was suggested in 2018 for a prized 5G band, with deeper cuts for some other bands. Apart from this move to make spectrum cheaper, some payment flexibility may also be offered. As new gigs expand service usage and tariffs improve, so can the sector.
Even with the low minimum, we don’t know how high the 5G bids will be. The auction, at first glance, appears to be both a fair and market-aligned way to allocate bands. Alas, telecommunications isn’t your classic free market: entry barriers limit rivalry to a few, while regulation can shape wins and losses. Meanwhile, as data emerges as the ‘new oil’ for its promise of wealth, and a gig economy lends itself to winner-take-all plays on the internet, end-to-end outreach on the airwaves The premium has gone up. Together, these factors can skewer bids upward, perhaps to the level of ‘winner’s curse’, as in fiscal sense on a quarterly or annual basis. While this gives long-horizon capital a clear edge, with big bucks invested for eventual gains, it could also distort the playing field of the sector, with its weaker players vulnerable to large auction outflows. needed. Therefore, while our bid-for-band model draws support for the use of a market tool that explicitly overcomes arbitrary allocation, its results in an oligopoly should not be the same. One solution may be to adopt an auction formula that removes the winner’s curse – eg, by charging less than the bid later. Boulder will still be a policy bet that gives India’s online economy spectrum free to reap the global cost advantage.