The spectrum bonanza

The auction of spectrum for the third generation (3G) mobile telephone services has been remarkable in many ways. The most obvious is the sum of money the government will get from the seven successful bidders and the two public sector entities, which will pay the auction-set price for spectrum preferentially assigned to them many months ago. The figure of Rs. 67,718 crore is well above the most optimistic of estimates either the government or industry had made — and it just goes to show why the auction is the best method of determining who should be granted a licence to use a public good such as the airwaves and at what price. This is virtually ten times the amount for which the government granted two years ago the licences for the second generation (2G) services on a ‘first-come-first-served' basis. Opponents of that exercise will now feel strongly vindicated. The second interesting aspect of the exercise is the wide regional disparity in the winning bids: New Delhi and Mumbai circles are worth a hundred times as much as Jammu and Kashmir or the North East circles. The assessment of the bidders may have been coloured by the unstable political conditions in those two regions, but the wide skew in economic potential across various other parts of the country, as reflected in the bid amounts, is a matter of concern.

While no single company has won in all circles, it has come as no surprise that the well-entrenched among the current service providers weighed in with the biggest bids and won in a majority of the circles. What that means is that most mobile users, once they upgrade their instruments, can expect their own service provider to give them the data-rich 3G service too in their home town. But can they expect the companies to keep the 3G service affordable after having offered these unexpectedly large sums for spectrum? The companies simply have no choice. The price benchmarks have already been set by the public sector BSNL and MTNL, which have deployed their 3G services for some months now, and by Reliance Communications and Tata Indicom that have repurposed their existing CDMA spectrum to provide a high-speed data service. If at all, the tariff will move down, and that would be a necessary condition for this premium market, which is currently not even 10 per cent of the total, to expand. And if it does move down, the mobile service could do for Internet penetration in this country, now at no more than 60 million users, what the cellular device did to phone communication, expanding in just 15 years from zero to over 500 million users. That would be an immensely larger bonanza for the country than what the government won at the auction.