Spectrum Auctions

ECONOMY/ GOVERNANCE

Topic:

• GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
• GS-3: Infrastructure: Energy, Ports, Roads, Airports, Railways, Telecommunications etc.

Spectrum Auctions

Context: Recently, government concluded its first auction of telecommunications spectrum in five years generating a revenue of ₹77,815 crore from the exercise.

Key Outcomes of the auction

• Reliance Jio accounted for close to 60% of the spectrum bought, followed by Bharti Airtel and Vodafone Idea. 
• On offer was over 2,308 megahertz (MHz) of spectrum valued for the auction by the government at ₹3.92 lakh crore, and bids were successfully received for 37% or 855.6 MHz. 

How has the industry been since the last auction?

• More Competitors in 2016: During 2016 auctions participants then included Tata Teleservices, Idea Cellular, Reliance Jio, Bharti Airtel, Vodafone India, Reliance Communications and Aircel.
• Consolidation of Sector: In the last few years, there has been a consolidation in the industry, as a result of which there are only three major players now — Reliance Jio, Bharti Airtel and Vodafone Idea.
• Moving towards Duopoly: Jio and Bharti Airtel are, by increasing their market share, shaping the industry toward “a near two-player structure”. On the other hand, Vodafone Idea is struggling financially.
• Financial Stress in Sector: In recent years, while the user base has grown, the industry itself has witnessed unforeseen financial stress in the form of an important court case against it i.e. Supreme Court verdict on AGR issue

Why was an auction needed now?

• All three players needed to renew some of their spectrum as the validity was set to expire later this year.

Wasn’t this for the 5G rollout?

• No. The auction for that is likely to happen later. In the auction that was held on March 1 and 2, the government offered spectrum for 4G in the following bands: 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz.

What do these bands stand for?

• To explain this, we have to begin with the term ‘spectrum’, which, in this context, stands for the portion of the electromagnetic wave range that is suitable for communication purposes. As this is a huge economic resource, which also provides unimaginable benefits to any population, it is controlled by the government.
• Spectrum bands have different characteristics, and this makes them suitable for different purposes. 
• In general, low-frequency transmissions can travel greater distances before losing their integrity, and they can pass through dense objects more easily. Less data can be transmitted over these radio waves, however. 
• Higher-frequency transmissions carry more data, but are poorer at penetrating obstacles.
• In this context, hertz is a measure of the number of cycles per second, and 1 megahertz stands for 1 million hertz. Telecom providers cover their bases by using both low and high-frequency bands.

Why did the 700 MHz band have no takers?

• The 700 MHz band, as also 1,800 MHz, 2,100 MHz, and 2,300 MHz bands, are seen playing an important role in the 5G rollout (the fifth generation of mobile networks that promises to connect everybody as also everything much faster and at much lower latency). 
• The 700 MHz band was not expected to find any takers given its prohibitive floor price. 
• Some see this as an opening for the government to scale down the reserve price when it comes up for bidding in future. Also, the “king” in 5G, the C-band, which is the band between 3,300 MHz and 4,200 MHz, was not on offer in this round of auctions.

How did this auction compare to the last round?

• In 2016, about 40% of the 2,355 MHz of spectrum (at a reserve price of ₹5.6 lakh crore) was sold, giving the government ₹65,789 crore in revenue. This time, the Centre has managed to get more.
• The government said the revenue generated by the auction has exceeded its expectations, which was about ₹45,000 crore.
• The expectations were low because of the economic downturn caused by the COVID-19 pandemic and the fact that the top three telecom players were looking to renew expiring spectrum and consolidate holdings in select bands.

Connecting the dots:

• 2020 Economics Prize on Auction Theory