From UPSC perspective, the following things are important :
Prelims level : Nothing Much
Mains level : Auction of spectrum may not be a good idea.
- On Monday, the Telecom Regulatory Authority of India (Trai) reiterated its stance on the issue of spectrum pricing, including that of 5G, for the upcoming auctions.
- This was in response to the Digital Communications Commission, the apex decision-making body of the Department of Telecommunications, which had sought a review of the Trai’s August 2018 recommendations on the auction of spectrum.
Reviewing the Trai’s recommendations
- The commission’s call for reviewing the Trai’s recommendations came amid concerns over the financial health of telcos, and worries that demand for spectrum is likely to be muted as consolidation in the sector has effectively left only three private telecom service providers.
- But, in its response, Trai has stayed with its earlier position, stating that all relevant factors, such as the methodology, assumptions, as well as developments between the spectrum auction held in October 2016 and its recommendations, released in August 2018, have been considered.
Telecom sector and revenue
- Over the years, the telecom sector has been a major source of revenue for the government.
- And at a time when the Centre is struggling to meet its revenue targets, higher proceeds from spectrum auctions could provide the much-needed boost to government coffers.
- But the temptation of revenue maximisation should be resisted when there are legitimate concerns over the financial health of the sector.
Lessons from the last bidding
- Aggressive bidding by telcos in the 3G auctions in 2010 marked a turning point in the industry’s fortunes.
- As a result of the pile-up in debt, highly indebted telcos exercised restraint in the 2016 spectrum sale, with the government realising only Rs 65,789 crore as revenue against Rs 5.63 trillion (base price) worth of spectrum that had been put up for sale.
- The price war, which began in September 2016, only exacerbated the already precarious financial position of incumbents.
- Their deteriorating finances have also taken a toll on the government’s revenue. In 2018-19, the Centre was able to collect only Rs 39,245 crore through licence fees and spectrum usage charges, as against the initial target of Rs 48,661 crore.
- In comparison, it had collected Rs 70,241 crore in 2016-17.
- While average revenues per user (ARPUs) have risen of late, a turnaround is still some time away.
- With precarious finances, a repeat of the 2016 auction is a possibility.
Implications for Telecom Sector
- At such high prices, cash-strapped operators will find it difficult to bid, without sinking even more into debt.
- This could impact their capital expenditure, leaving them with fewer resources to invest in towers and fibre optics.
- Acknowledging the issues plaguing the sector, the telecom minister, Ravi Shankar Prasad, has recently set up a panel to rationalise levies, and to look into other issues.
- While it might be difficult to set aside Trai’s recommendations, the government would do well to think carefully through the implications of the recommendations, before rushing to auction high-priced spectrum.