Probing the Link: Electoral Bonds and Satellite Spectrum Allocation
Electoral bond skepticism should not lead us to repeat 2G's narrative errors, whose lasting effects undermine market competitiveness and service quality.
At the outset of this discussion, it is crucial to address a pertinent question: Is there a link between the allocation of satellite spectrum and the issuance of electoral bonds? To understand the necessity of this analysis, one must consider the context. Investigative journalists, driven by a commitment to transparency and accountability, have speculated on a possible quid pro quo underlying the government's decision to eschew auctioning satellite spectrum and the allocation of electoral bonds by Bharti to the ruling party. While I do not assert the presence or absence of a quid pro quo, the motivation behind this note is to emphasize the risks associated with investigative journalism that lacks a robust understanding of the technical and policy dimensions. Such endeavours, albeit well-intentioned, can inadvertently distort the public discourse, drawing parallels from the aftermath of the 2G scam that continues to reverberate through the telecom industry, impairing its competitive landscape and stifling technological advancement, including unlocking its true potential. This note aims to dissect these complexities and elucidate the underlying issues with utmost clarity, thereby contributing to a more informed and nuanced conversation.
The Ripple Effects of the 2G Scam Narrative on Telecom Sector Competitiveness
Before delving into the complexities of satellite spectrum allocation, it is critical to understand the pervasive impact of the 2G scam narrative on the Indian telecom sector. The focus here is on the narrative's repercussions rather than the scam itself. While it is acknowledged that the 2G spectrum was allocated at below-market prices, potentially due to corrupt motives (not yet proven in the courts), the purported fiscal loss of Rs 1.76 lakh Cr has been a subject of debate. My stance is that the proclaimed loss, widely amplified by the media, was an exaggerated figure that did not just misrepresent the fiscal impact but also prompted policy shifts with long-term detrimental effects on the industry. This context is essential to appreciate the nuances of the satellite spectrum debate.
a) Misguided Calculations - The loss estimation method, which involved applying 3G auction prices to 2G allocations, was fundamentally flawed. The 2G scandal inflated the 3G spectrum demand, as companies, some beneficiaries of cheaper 2G licenses, frantically bid for limited 3G bandwidth to secure their market standing. This frenzy, driven by necessity rather than genuine market value, led to an unrealistic price benchmark for 3G—and by extension, 2G. Analogously, this is like appraising the worth of routinely supplied water based on the exorbitant prices people might pay during a scarcity crisis, not recognizing that the value in each context varies significantly.
b) Consequences of Elevated Spectrum Costs - The crisis-driven pricing scenarios in the telecom sector resemble a severe drought situation where, despite high costs, people find themselves at risk, akin to the downfall of operators such as TATA, RCOM, and Aircel and the financial turbulence faced by Vodafone and Idea. These outcomes emerged from the substantial financial burdens these companies bore during spectrum acquisitions at inflated prices, a situation inflamed by public indignation over perceived financial mismanagement in the wake of the 2G Scam. Such widespread concern hampered the government's capacity to adjust spectrum pricing judiciously, eroding the competitive essence of the industry. Consequently, this skewed narrative not only drained the telecom sector's vitality but also led to: a) the marked underutilization of vital, high-value spectrum, especially in the Sub GHz bands, with only 0% of 600 MHz, 20% of 700 MHz, 50% of 800 MHz, and 60% of 900 MHz being commercially exploited by operators; b) compromised the government's leverage to free up critical spectrum segments like the 6GHz band, pivotal for integrating advanced technologies such as WiFi 6, essential for enabling high-speed 5G Air Fiber in residential settings, thus highlighting the extensive adverse effects of a misinformed policy environment.
The Adverse Impact of Compulsory Spectrum Auctions in India
As we dive further into our analysis it is also imperative to critique India's prevailing spectrum auction policy, misconceived post the 2G scandal and exploited by those seeking to diminish competition for undue gains, thus misinterpreting the Supreme Court's nuanced verdict advocating auctions primarily in supply-deficient scenarios. Referencing the Supreme Court's judgment from 2nd February 2012 (Page 86 extracted below) highlights the state's obligation to ensure fair, non-discriminatory resource allocation, endorsing auctions as the ideal method under specific conditions, not universally.
When it comes to alienation of scarce natural resources like spectrum etc., it is the burden of the State to ensure that a non-discriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest. In our view, a duly publicised auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. In other words, while transferring or alienating the natural resources, the State is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process.
Though not mentioned by the SC directly, Auctions, while effective in situations of high demand over supply, fail to establish genuine market value when supply outstrips demand, leading to uncompetitive reserve price sales and unsold spectrum, a scenario far from the auction's intended transparency and fairness as was envisaged by the SC. The misapplication of this strategy (as is being experienced today) severely affects multiple sectors: businesses lose the incentive to innovate, the government's regulatory clout weakens, consumers face limited choices and substandard services, employees in the telecom sector see reduced opportunities, and the economy suffers from the underutilization of these critical assets. Since 2016, this flawed policy approach (auctions), ostensibly adhering to transparency, has reverted to what is essentially an administrative distribution at elevated reserve prices, with substantial spectrum portions routinely unsold (lying fallow), underscoring a profound policy failure impacting all stakeholders, as demonstrated in subsequent analyses.
Analyzing the outcomes of India's eight spectrum auctions reveals a telling trend: only three of these auctions culminated in sales with prices substantially exceeding the reserve benchmarks. The inaugural instance was the 2010 3G auction, where the urgency and demand were notably amplified by the circumstances surrounding the 2G scandal, as previously discussed. Subsequently, the 2014 and 2015 auctions witnessed heightened activity, primarily due to the expiration of 2G licenses, prompting incumbents to bid aggressively to secure their operational continuity. In stark contrast, during the remaining auction years, the spectrum frequently sold merely at the set reserve prices, with a significant portion remaining unsold. This pattern is starkly illustrated by comparing the volume of spectrum made available at reserve prices against the actual sales and valuations achieved, highlighting a recurrent issue of underwhelming auction outcomes and inefficient spectrum utilization.
Challenges of Auctioning Spectrum for Satellite Services
I have previously delved into the complexities of spectrum auctions through a series of articles, links to which are available at the end of this document. To distill the core argument here: auctioning spectrum for satellite services is inherently flawed, even if we set aside the issues related to terrestrial spectrum auctions. The crux of the matter lies in distinguishing between private and common resources. For instance, we purchase land or buildings for private use, paying a market price for exclusive rights. However, this model doesn't apply to public assets like roads, parks, or highways, which are designed for communal use. Exclusive ownership here would lead to underutilization and wastage, even if we assume that individuals or entities afford to buy them.
The same principle applies to satellite spectrum. Allocating it exclusively, as if it were a private commodity, overlooks its intrinsic nature as a shared resource, potentially leading to inefficiency and harm. Conversely, non-exclusive allocation via auctions presents its own set of problems. Bidders would be vying for market access and the exclusion of competitors rather than the intrinsic value of the spectrum. Moreover, if future bids are allowed, early bidders who paid for a certain market share would find their investment diluted by subsequent entrants, rendering the initial auction price meaningless and obsolete. This fundamental mismatch between the auction model and the shared nature of satellite spectrum underscores why such an approach is problematic.
Conclusion
Throughout this analysis, we've navigated the nuanced terrain of India's spectrum allocation policies, unraveling the enduring shadows cast by the 2G scam narrative, dissecting the problematic nature of spectrum auctions, and addressing the peculiar challenges of satellite spectrum allocation. Our exploration underscores a critical lesson: the interplay between policy decisions and their widespread societal impacts is intricate and profound.
The legacy of the 2G scam narrative continues to shape India's telecom sector, influencing policies and market dynamics in lasting ways. While auctioning spectrum aims to ensure fairness and transparency, its mechanical application across different market conditions and spectrum types has inadvertently perpetuated market inefficiencies and stifled innovation. In the satellite spectrum context, the insistence on auction-based allocation overlooks the fundamental shared nature of this resource, risking inefficiency and exclusion rather than promoting optimal use and accessibility.
The Supreme Court's advocacy for auctions was intended to safeguard the public interest and prevent resource misallocation. Yet, the essence of their directive is not a blanket mandate for auctions but a call for context-sensitive, fair allocation methods that align with supply-demand realities and uphold transparency and inclusivity. The continuous practice of setting arbitrary reserve prices for spectrum auctions, resulting in significant amounts of unsold spectrum and even impeding the government's capacity to free up key bands like 6GHz for WiFi, underscores a profound disconnect with strategic goals, affecting a wide array of stakeholders ranging from businesses and consumers to employees and the larger economic landscape.
As we contemplate the intricate relationship between electoral bonds and spectrum allocation, it is paramount to foster a policy dialogue that is not just reactive but visionary, anchoring on principles that advance a competitive, innovative, and inclusive telecom industry. Moving forward, the imperative is clear: policies must transcend past errors, embracing a nuanced understanding that fosters transparency, competition, and the broad public interest, catalyzing India's journey toward digital empowerment and economic resilience.
Further insights: Explore my articles related to this subject:
Revolutionizing India's Satellite Spectrum Charges for a Connected Future
Why Satellite Networks Can't Replicate Conventional Mobile Networks
Satellite Auctions - How can we enhance the scalability of the Revenue Share Model?
Why is auctioning satellite spectrum based on a % of AGR a suboptimal auction design?
Satellite Spectrum - Administrative Assignment is in the true spirit of the SC Judgment