Spectrum Auction - An Expensive Blunder

If India is to achieve its dream of becoming an ITsuperpower, it has to have adequate and inexpensive communication accessnetwork, i.e. bandwidth. And today, there are two preferred means of buildingbandwidth–optical fibre and radio frequency spectrum. The latter is beingincreasingly used in the access segment, be it fixed or mobile. Most futuristicservices are now being planned through wireless access.

Radio spectrum came to be utilized for access in mobiletelephony during the mid 1980s. The modulation techniques then were very basicand only a small part of radio spectrum was being used for access. At that timeall governments (the Nordic countries, UK, USA, Canada, etc.) gave the spectrumfor the First Generation mobile telephone service without any auctions. Onlymoderate user charges to cover the cost of allotment, monitoring, and managementof the spectrum were charged.

During the past 15 years, mobile telephony has caught onimmensely; new techniques for efficient spectrum utilization have come up; newuses for wireless access have been found. Mobile devices now connect to theInternet requiring immense bandwidth.

To Auction or Not To

The million-dollar question is–should it be auctioned?Alternatively, should it be given for a price just enough to manage thespectrum?

The US auctioned the spectrum for the Personal CommunicationsSystem (PCS) three years ago and realized billions of dollars. But soon aboutone third of the companies surrendered the licences for reasons ofnon-viability. Notwithstanding this bitter experience UK auctioned the spectrumfor the 3G mobile services and collected $32 billion. Germany followed suit,realizing about $38 billion.

The perspicacious commentators and economists see a disasterin these auctions. In the final analysis, the customer pays the price. Countrieslike Japan, China, France, and Spain are allotting the spectrum at modestpre-determined prices to those who are selected as the best qualified to provide3G services. It will be a costly blunder if India auctions the spectrum or eventhe licences. The teledensity is less than three percent. Mobile telephonesdensity is one thirteenth of this.

The top priority should be to facilitate the growth of user population in thecountry. That should automatically increase the revenues for the Government. Forthe first five years there should be no auction or high entry fee and spectrumcharges or revenue shares. There should be only the
service charge of five percent on revenue. Each operator should contribute twopercent of the revenues towards Universal Access Fund, which should be used toincrease teledensity in
rural areas.

Dr TH Chowdary
is chairman, Centre for Telecom Management Studies and chief IT adviser toGovernment of Andhra Pradesh. He can be reached at thc@satyam.com