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Lessons that are not learned from Indian spectrum policy

Thomas K Thomas has been covering Indian telecom issues for a long time. His reflections on the lessons that need to be learned from Indian spectrum policy since 1994 are worth a read:

Back in 1994, when telecom licences were given out for the first time, a flawed auction design allowed non-serious players to bid astronomical sums and then default on payments. In 2002, operators were given additional spectrum on subscriber-linked criteria without any upfront fee. This was the first time anywhere in the world spectrum was given based on number of subscribers. In 2008, the then telecom minister A. Raja decided to give away fresh licences on first-come-first-served basis at throwaway prices to a few players, despite having as many as 46 players waiting in line.

The mistake the policy makers committed in each of these instances is that they did not make the right assumptions about information related to bidder resources, risk-acceptance and -aversion, and the structure of bidder preference. These matter because they imply things about how the real world operates. The past ten years of spectrum allocation policy have amounted to an experiment that demonstrates that the assumptions on the basis of which spectrum allocation were done fail dramatically in their prediction of real-world outcomes.

Take the latest instance where the Government repeated its mistake of trying to fix a reserve price aimed at filling the exchequer’s coffers. After the November auction managed to fetch only Rs 9,400 crore, compared with expectations of Rs 40,000 crore, one would have thought that the Government would let the base price be fixed based on market realities.

If in 2008 there were more than 40 applicants interested in entering mobile telephony business, today the market has changed dramatically with most operators servicing huge debts, thus struggling to remain profitable.

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