On the face of it, the government will be pleased with the first round of spectrum auctions this year. It managed to garner Rs 77,800 crore from the auctions, which is well above the Rs 65,789 crore it received in the previous round of spectrum. This amount is also more than twice the Rs 33,737 crore that it garnered as non-tax revenue from the telecom sector as a whole in 2020-21, as per the revised Budget estimates.
However, far from taking comfort in the revenue numbers, the government would do well to read the real signals from this round of spectrum auctions and do a re-think on its 'revenue first' approach to this sector. The fact remains that this round of auctions can hardly be deemed a success. Only 37 per cent of the offered spectrum was sold, which is actually less than the 40 per cent of available spectrum sold in the previous auction in 2016. There were only three telecom operators who actually bought any spectrum.
Here too, the lion’s share of Rs 57,100 crore was contributed by the deep-pocketed Reliance Jio. A furtherRs 18,699 crore came from Bharti Airtel, with the struggling Vodafone Idea combine picking up the rest. When 98 per cent of the money comes from only two players, it points to a radically changed market scenario from even the previous auction, leave alone the early auctions, when 8-10 players competed fiercely for spectrum. Further, it must be noted that all the spectrum sold was at the reserve price, which means the days of bidding wars are long past. More disturbingly, the 700 MHz band, crucial for 5G roll-out, went abegging for the second time running, despite the reserve price being slashed by 43 per cent from the previous round.
The implications are clear. The government can no longer afford to view spectrum solely as a cash cow to be milked to fund its deficit. Today, the telecom sector is struggling under a mountain of debt, which has led to the exit of a number of players. This has already resulted in rising prices, particularly for broadband, for users. The high cost of spectrum has also severely hampered the ability of telecom companies to invest in other network infrastructure, leading to overloaded networks and abysmal call quality, with frequent drops.
The Supreme Court order on adjusted gross revenues being used for revenue share calculations have brought the remaining operators almost to their knees. With telecom becoming a basic necessity, much like oil for energy, it is high time the government took a more pragmatic approach to spectrum pricing. Rather than revenue, it has to put consumer interest and the overall health of the sector first. This calls for a drastic overhaul of the pricing model. Reserve prices need to be kept realistic, and the auction process must allow all players a reasonable chance of procuring spectrum.