TRAI’s auction flip flop

Abstract

The telecom regulator has never been consistent about how to price and allocate spectrum. There was no auction or that it got resold at a higher price may not be due to corruption, but inefficiency. To make a mistake is not criminal. Otherwise the executive can’t function. However, actions with the mala fide intention of gaining pecuniary advantage is a criminal act. This has to be established. But in the present surcharged atmosphere, fixed-price supporters are seen as abettors of corruption and auction- wallahs as honest and patriotic. Trai has been affected by this syndrome and is reacting to it. In 2003, there was no problem and in its recommendations on how to add new players, Trai said that subject to spectrum availability, the government could introduce new players through a multi-stage bidding process: it was clearly in favour of auctions. In 2007, one year prior to 2008, the atmosphere was charged withdebateonauctionvsfixed price sale. That Trai was torn between its professional duty and loyalty is seen by its 2007 recommendations: “The allocation of spectrum is after the payment of entry fee and grant of licence. The entry fee as it exists today is, in fact, a result of the price discovered through a marketbased mechanism applicable for the grant of licence to the fourth cellular operator. In today’s dynamism and unprecedented growth of telecom sector, the entry fee determined then (i.e., in 2001) is also not the realistic price for obtaining a licence. On the other hand, spectrum usage charge is in the form of a royalty which is linked to the revenue earned by the operators, and to that extent, it captures the economic value of the spectrum that is used. …The authority…is conscious of the legacy, i.e., prevailing practice and the overriding consideration of level playing field. Though the dual charge in the present form does not reflect the present value of the spectrum, it needed to be continued for treating already specified bands for 2G services, i.e., 800, 900 and 1,800 MHZ. It is in this background that the authority is not recommending the standard options pricing (sic) of spectrum, however, it has elsewhere in the recommendations made a strong case for adopting auction procedure in the allocation of all other spectrum bands except 800, 900 and 1,800 MHZ.” Here, Trai may have misspelt ‘auctions’ as ‘options’. Trai believed that it was necessary for new entrants in the SGEETANJALI 2G space to be able to compete with incumbents and offer affordable services. It, therefore, felt that new entrants should follow the same pricing rules as incumbents. But Trai was clear that spectrum for new services like 3G and BWA should be auctioned. Traisaidthatitwouldn’tmake sense to auction 2G spectrum because players were allocated bandwidth at different times, held different amounts and across GSM and CDMA technologies. Taking a cutoff and beginning auctions could be arbitrary and tilt the playing field against some players. o, in 2003, Trai favoured multi-stage auctions, as was done for the fourth cellular operator, to add new players. In 2007, Trai was torn betweenmarketdynamicsand the necessity of realistic pricing and supporting the status quo of fixed pricing on the grounds of affordability and level playing field. In one paragraph, two halves talk of oppo- siteprinciples.itsupportsauctions for the future and fixed pricing for the past. It justifies both,arguingforfixedpriceon grounds of affordability, growth and the need for all players to have a level playing field. This, even though regulatory tweaks like number portability and mandatory open access to others’ networks have already made the field pretty level.traicanequallyarguein favour of auctions by saying that spectrum is a scarce resource and efficiency would require its price being discovered through auctions. The 2010 recommendations certainly have the flavour of a lawyer’s brief rather than that of a regulator. It vigorously defends the giving of 2G at fixed price in 2008, first as a matter of policy, as if it is sacrosanct. It debunks the financial loss argument by saying, “why look at 2008 alone, they were doing the same way right from 2001, and even giving spectrum free”. Here, one can see the anxiety of the regulator to please the government that appointed him. If in the process it requires faulting the ministry, running down fellow-bureaucrats, it is par for the course: Trai has also argued that “the department has been giving (spectrum) free all the time”. Thus, there are situations where the regulator is captured by the favour he was done in being appointed. The 2G case illustrates how there is a different form of regulatory capture, this time the regulator being indebted to the master who appoints him.