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Spectrum auctions should aim to balance transparency and revenue expectations, says ICRIER- BIF report

April 15, 2019
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A report titled ‘Evaluating Spectrum Auctions in India’ released by the Broadband India Forum (BIF) in collaboration with Indian Council for Research on International Economic Relations (ICRIER) has suggested that the upcoming spectrum auctions should aim at easing pressure on telcos while balancing transparency and revenue expectations. The report recommends a relook at auction design including spectrum pricing methodologies that primarily rely on reserve prices for successful outcomes. Further, the ICRIER-BIF report has evaluated the recommended reserve prices using the 1800 MHz band as an anchor.

The Telecom Regulatory Authority of India’s (TRAI) methodology of calculating reserve price does not rely much on fresh valuation of spectrum. In 18 out of 22 circles, the reserve price of spectrum is based on last auction price duly indexed. As per the Department of Telecommunications’ (DoT) norms, the price can be based on last auction if it has happened within a frame of one year, as per an official statement by ICRIER and BIF.

The report further suggested that over reliance on reserve prices may not necessarily yield successful market outcomes. Furthermore, bidder turnouts, market conditions and choice of auctioning agent also tend to influence outcomes. It recommends that marginal cost of funds based lending rate (MCLR) is not ideal for the purpose of indexing. While a telecom price index is not available for India, the consumer price index (CPI) could be used as proxy.

While citing the importance of auction design, the report recommended that India should use combinatorial clock auctions (CCA) since it avoids aggregation risks and is arguably more efficient. India currently follows a simultaneous multi-round ascending auction (SMRA) which, while providing the option of price discovery, supposedly also poses an aggregation risk.

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