Auction it

Communications Minister Dayanidhi Maran has done well to ask the rival mobile telephone groups who offer GSM and CDMA-based services to sit down together and resolve their differences on the issue of allocation of fresh spectrum (the airwave frequencies on which telecom signals are carried) to them. For, both sides cite arguments that are diametrically opposite.

While the telecom regulator, Trai, had recommended that both CDMA and GSM operators be given the same amount of spectrum on the grounds of technological neutrality, the GSM operators cite the original statements made by CDMA technology suppliers like Qualcomm which said this technology was at least five times as efficient as GSM when it came to using spectrum — in other words, give CDMA a fifth of the spectrum given to GSM companies.

Ironically, when the previous government brought in CDMA players into full-blown mobility, this very efficiency was cited as the reason for doing so, the argument being that there was enough spectrum to go around!

The Trai, and the CDMA lobby, now argue that this five-times efficiency ratio applies to initial operations only and not when the network has lots of subscribers and in crowded areas like Delhi and Mumbai.

In turn, the GSM lobby brings out technical specifications, as well as a real life example from Delhi, to show that the CDMA lot are just not using their spectrum efficiently since they are not building up enough transmission towers in comparison — the numbers built up by Bharti and Reliance in Delhi are cited.

That is, if the CDMA players spent as much money as the GSM lot have, and built the same number of transmission sites, they’d be able to service a lot more customers with the same level of spectrum. The battle goes on, and as is obvious, no settlement reached can possibly be an optimum one since any spectrum formula that is finally announced will never be agreed to by the other side.

In which case, perhaps, the best solution is to auction the additional spectrum. Once spectrum is to be priced, then firms will bid accordingly and a true process of price-discovery will take place.

As for the argument that this will raise prices for consumers, it’s unlikely that firms will bid so high as to make their services unviable — this happened in 1994 when telecom services were opened up for the first time, but when the fourth cellular licence was auctioned, no one bid unrealistic figures.

However, if the CDMA firms can make do with a lot less spectrum, another argument goes, they will bid higher prices than the GSM lot and corner all the spectrum. One way to prevent this is to put in a clause which says the spectrum will be confiscated if it is not utilised within a fixed period of time. In sum, it is always possible to design an auction in such a way so as to ensure against most pitfalls.

Of course, it must be acknowledged that the whole reason for the mess is that the government brought in too many players into the market by creating the incorrect impression that there was enough spectrum available — it’s possible, therefore, that some companies may eventually take the government to court if the spectrum is auctioned instead of being handed out free.