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Pricing It Right: Learnings from the past key to the success of 5G spectrum auctions

October 31, 2019
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T.V. Ramachandran, President, Broadband India Forum

Every unsuccessful mobile spectrum auction has severe implications not only in terms of spectrum remaining unsold but also in terms of valuable economic benefit lost as a result of the unsold spectrum remaining idle. In the last spectrum auctions held in October 2016, which was also the country’s largest spectrum sale, more than 1,300 MHz of radio spectrum, approximately 59 per cent, remained unsold. Taking together all the six auctions held since 2010, only about 60 per cent of the spectrum put up for auction has been sold.

Adopting a conservative approach, India had 762 million active mobile connections in 2016, served by over 3,800 MHz of spectrum allocated to licensees. This indicates that the idle spectrum with the government could enable connectivity for roughly 278 million additional active connections. These connections correspond to 21 per cent of the total Indian population. If a 10 per cent increase in teledensity leads to a 1.9 per cent increase in GDP (applying the results of an ICRIER India-specific economic impact study), the financial cost of this idle spectrum could be estimated at Rs 5.4 trillion, or over 160 per cent of the financial benefit of Rs 3.3 trillion realised from all spectrum auctions so far.

The socio-economic relevance of technology and of such a figure is significant, especially for a country like India, which is aspiring towards a Digital India paradigm. It is also important to note that this estimated increase in national GDP is over and above the increase that accrues to the national exchequer in exchange for the rights to use radio spectrum.

Spectrum’s greatest value comes through its usage, rather than from the direct short-term revenues accrued through its sale. One must note that spectrum prices in India are inarguably the single most important factor that can make the auction into a success or a failure. However, the true purpose of setting a reserve price for spectrum is to deter non-serious players from participating in the auction while, at the same time, ensuring a rational price point is offered so as to enable discovering a vibrant realisation of the true market price, and successful participation by committed companies.

In the context of the upcoming 5G spectrum auctions, it is imperative that the learnings from the past are considered and the auctions are recalibrated in a manner that sets reserve prices at reasonable rates to facilitate maximum auction participation, and maximise the sale of spectrum so that an optimal combination of both direct and indirect benefits is realised.

Moreover, the quantum of 5G spectrum that has been allocated for the upcoming auctions is not enough for a country of India’s size and density. The amount of spectrum being made available for 5G in India is 175 MHz, which is almost half that in the US. Additionally, the present 5G reserve price (3.5 GHz band) at Rs 4.92 billion per MHz is also significantly in deviation with international norms. In absolute terms, the recommended reserve auction price is five to six times higher than that in other countries. Instead of just comparing absolute prices, we need to look at the same relatively and compare them on the revenue generating potential of spectrum in different countries, that is, in terms of ARPU adjusted USD cost per MHz per population, which is considered a more appropriate benchmark for countrywide spectrum price comparisons. The price of 5G spectrum in India is about four times higher than that in the UK and South Korea in terms of ARPU, and eight to nine times more than that in Spain and Finland.

Stakeholders need to assess the current situation with regard to spectrum auctions not just in the context of pricing, but also availability. India requires more spectrum to support surging data traffic. The country now has the highest data traffic in the world, but one of the lowest spectrum allocations therein. Many developed countries across the world have assigned spectral resources far in excess of the quantum that is available to Indian operators. India has 175 MHz of spectrum, far behind the 370 MHz in the US, 296 MHz in France and 260 MHz in China. For a country with a large population, highly inadequate fixed line connectivity and rapidly growing mobile usage, this is an enormous problem that constrains the coverage as well as quality of services.

The country is looking towards the Digital Communications Commission, the policymaking body, to come up with an enabling policy decision, focused on achieving the Digital India dream. The present scenario is analogous to that in 1999, when a bold policy decision by the government helped break away from legacy issues and introduced the game-changing National Telecom Policy, 1999. The results were evident as it propelled the growth of mobile telephony across the nation, and placed India on the global map.

 
 
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