The Telecom Regulatory Authority of India (TRAI) is reportedly considering halving the reserve price for 5G spectrum auction. That would be wise. A significant initiative would be to invite private equity, sovereign wealth funds and other non-telecom big cats of the business world to participate in the auction, buy spectrum in bulk and lease it to telecom operators for short periods – as That in as little as a day or an hour, or the amount of time it takes to initiate and complete a call.
In 2018, TRAI had recommended reserve price 492 crore per MHz for spectrum, and telcos have been struggling to reduce it since then. In March 2021, the government learned what telcos’ allergy to high prices meant: it offered a total of 2,308 MHz of spectrum in the 700 MHz and 2,500 MHz bands, and only 37% had been sold. The unsold inventory in the hands of the government not only yields any revenue, but also works to the competitive disadvantage of Indian industry even as China moves forward with its 5G deployment, creates new businesses and Enables regular industry to adopt a paradigm shift in the manufacturing process. Dubbed Industry 4.0, in which machines communicate with other machines over a 5G network and calibrate their work according to algorithms informed by artificial intelligence.
Higher reserve prices are unclear from two perspectives. Auction design is now a science that can rule out collusion and ensure fair value discovery of whatever is being auctioned. Why set artificial flooring prices, when, even if bidding starts 1, Will the final, winning price reflect the economic value of the item being auctioned? The second idea is to increase the capital cost of telecom operators to increase the upfront cost of spectrum and make it more expensive for consumers to access advanced telecom services.
The best telecommunications services in the world are to be found in South Korea and Japan, and no country allocates spectrum on an auction basis. Spectrum is assigned on a discretionary basis, with the focus being on ensuring the availability of state-of-the-art telecom services and a super-capable industry that will generate revenue, rather than generating revenue from spectrum auctions. Neither the Japanese nor the Koreans are impatient about eating almost anything that can crawl, crawl, swim, fly, or run. But when it comes to geese that lay golden eggs, they clearly lay down.
India’s political economy will not allow spectrum to be allocated to operators on the basis of a beauty contest in which the government, the beholder, determines the suitability or beauty of an operator to be in the business of offering telecommunications services. Hence, some non-arbitrary way has to be found to allocate spectrum among the alternative contenders. It would be ideal if a mechanism could be found, which both maximizes revenue for the government from spectrum auctions and, at the same time, reduces or eliminates the upfront payment for 30-year leases of spectrum. Such a mechanism would be for something in the spectrum equivalent to aircraft sales and lease-back models in the aircraft business. Airlines do not own planes, they lease them from financial firms that own aircraft.
In a world of ultra-low rates of interest, the world is filled with large chunks of savings in search of profitable deployment. Even after several rounds of Fed tightening, yields on 10-year US government bonds are not expected to rise above 2.5%. Large pension funds require three to four times higher returns to meet their obligations towards their clients. Why are such entities not invited to participate in spectrum auctions, and short-term spectrum leases to telecom companies at rates that are commercially understandable to all involved?
Many such spectrum landlords who are looking for telecom as short-term tenants will ensure competitive pricing of spectrum. With the pay-as-you-go pricing model, telcos can recover the cost from the monthly bills of their consumers and there is no capital cost for the service on spectrum. There will also be a new income stream to invest in the larger pool of savings.
But is it technically possible to share spectrum with multiple operators? indeed it is. Cognitive radio allows spectrum hopping of quite a few latitudes. In fact, this is the only way to ensure optimum utilization of spectrum. Why should spectrum be given to only one operator, only to remain unutilized when there is no demand from its customers? Similarly, why should an operator be forced to buy enough spectrum to meet the peak demand, which will kick in only for a few hours, while the bulk of the demand is for a small amount of spectrum?
If a telco can have spectrum on tap from multiple, competing spectrum landlords who are willing to lease their spectrum for short periods, no telco capital will be locked into an underutilized spectrum. The advanced analysis will allow telcos to forecast spectrum demand for a short period in the future and bid for leasing the required spectrum from spectrum holders at competitive prices. The better the analytics, the shorter the lease period.
Let India’s telecom policy makers and regulators spark innovation, inspiration and sound business sense, all in one go!
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