The Devil is in the Details: Lessons from the Indian Spectrum Auctions

Abstract

The Indian telecom growth as in other countries, largely driven by mobile, saw its teledensity reach nearly 87% by 2016 over a population base of nearly 1.2 bn. As is the trend globally, spectrum has become a critical resource for further growth in the sector, especially with greater demand for data. In India, the initial slow growth was largely attributed to the Department of Telecommunication’s (DoT) design of auctions and the mismatch of the auction outcomes with the market reality. Limited amount of spectrum made available for mobile services and high population densities created a spectrum crunch. Further, given the potential of growth in the market and telecom policies that encouraged competition led to about 10-14 service providers per state creating a further pressure on spectrum. In addition, difficult exit rules and M&A guidelines reduced the scope for consolidation, creating operational and financial pressure for operators. These factors influenced bidding/acquisition of spectrum. From 1995-2010, India largely adopted spectrum auctions other than in 2007-08 when it adopted first-come-first-serve (FCFS) policy for 2G. In 2010, it adopted a sophisticated simultaneous multiple round (SMRA) auctions for 3G. Subsequently, a Supreme Court judgment in 2012 canceled all licenses awarded through FCFS and mandated that all spectrum had to be allocated through auctions. Subsequent auction designs have used SMRA for different bands. The last auction was in 2016. It was a multi-band auction covering 700MHz, 800MHz, 900 MHz, 1800 MHz, 2300 MHz, and 2500 MHz. The 700 MHz band, which is a valued band for 3G and 4G saw no buyers and the 2500 Mhz band which did not have a well developed ecosystem saw significant competition and was allocated. The above raises issues about the efficacy of auction design. While the DoT accepted SMRA as an efficient and effective auction mechanism, it recognized that the specific design elements such as reserve price, withdrawal rules, stopping rules, minimum bid increments have influenced bid outcomes. These parameters needed to incorporate the context of the auction such as requirements of spectrum for different bidders, expectations about future availability, competitor’s bidding strategies, whether single or multiple bands, etc. We plan to document the spectrum auction design, bidder strategies and outcomes, for the auction held in 2016. This auction provides a rich backdrop for the study as it was held in an environment where several prior auctions that had poor outcomes in terms of participation, bid amounts and amount of spectrum made available and new regulations regarding spectrum sharing and trading had become operational. The competitive environment had also changed significantly with possibilities of future M&A. We shall identify the learning from the analysis so as to help with the subsequent auction designs. Such recommendations will also take into account developments in this space in other countries. Methodology: We shall follow the case based approach and document the same using secondary sources of data.