According to this article that appeared today in India’s Business Standard, TRAI seems to be considering using a base price + beauty pagent mechanism to award 5 licenses (of 5MHz each) for companies to introduce 3G services.
The prduence of using beauty pagents needs to be questioned. The failures of 3G auctions in Europe in 2000 has been mentioned as one of the reasons for opting for a beauty pagent. However the failures of those auctions stemmed from operators’ over-estimating the potential of a new and untested service. It is unlikely that operators would make the same mistake again – my argument being once-bitten, twice shy.
Economists would argue that auctions, with sufficent safe guards to eliminate (or at the very least minimize) collusion/signalling and to enforce rollout is the best method of allocating scare resources. I am not an economist but the arguement makes sense and the process can occur in a transparent and efficient manner. License allocation by beauty pagents don’t have a reputation for transparency. Recent auctions, such the recently concluded USD 13.9 billion license auction in the US (Washington Post article), have learnt from past mistakes (The FCC included some provisions in the current auction to take care of problems that emerged in the big 1990s auctions when one winning company filed for bankruptcy and succesfully took FCC to the courts to prevent them from repossessing their licenses- see the related IHT article ).
Lets see what TRAI’s final decision is, but at the very least I hope they provide sufficent justifications for their choice.