The Union Cabinet has cleared a mega auction of radio spectrum in various bands for commercial mobile services. Based on the recommendation of the Telecom Regulatory Authority of India (TRAI), the government is planning to auction spectrum in the sub-GHz bands of 600, 700, 800 and 900 MHz; in the mid-bands of 1,800, 2,100, 2,300, 2,500 and 3,300 MHz, and in the high-frequency band of 26 GHz. The total spectrum to be auctioned is about 72 GHz, compared to about 2.2 GHz put on the block last year. The cumulative reserve price — and hence the potential revenue accrual to the government at reserve prices — is about ₹4,31,605 crore compared to about ₹3,90,000 crore last year. However, the realised value in last year’s auction was just about 20% of the reserve price at ₹74,000 crore, with the 700 MHz and 2,500 MHz band not being sold. While the 2021 auction could be considered a failure from the auctioneer’s point of view, will the auction scheduled for this month be successful? There are many factors that determine the success of spectrum auction.
Reserve price
The first is the reserve price. Our research on a cross-country spectrum database shows that the reserve price significantly and positively correlates with the winning bid price. However, a higher reserve price also inhibits bidders from bidding for more spectrum blocks, resulting in lower amounts of spectrum sold. If the quantity effect is more than the price effect, it results in reduced revenues for the government exchequer, as it happened in 2021. The government has accepted TRAI’s recommendations on the reserve process across different bands, which is less than what was specified for the respective bands last year. Though some of the bands are high-priced compared to other countries, the average price of the new bands such as 3.3 GHz and 26 GHz, at $0.02 and $0.0004, are in line with international prices on per MHz per pop basis. However, the evolving heterogeneity within each of the 22 LSAs (licensed share access) makes it difficult for the bidders to ascertain the true value of the spectrum given the reserve prices. Hence, the uncertainty in the winning bid prices.
