Crowded House: Comments on TRAI’s Recommendations on Permitting New Entities for Allocation of 3G Spectrum

Recently, TRAI restated its stand on, not permitting new entities participate in an auction for allocation of 3G spectrum. Initially, I was against the recommendation that only existing operators should be allowed to bid for 3G Spectrum. However, on a deeper study I found the recommendation correct. My reason for supporting the recommendation is that a crowded field in, a closed bid auction for 3G Spectrum will lead to illusionary bid amounts by players, which will be hard to recover.

The TRAI has indicated that spectrum is limited and cannot be allocated to all existing players. In such a circumstance existing players are in an inexorable position where they have to secure 3G spectrum for future growth and expansion. Hence in closed bid spectrum auction existing players already numbering 14 will try to outbid each other. Hence, the amounts stated by them will be illusionary and not be reflective of commercial viability of gaining 3G Spectrum.

The entry of new players will lead to further complications. New players will see an opportunity to secure 3G spectrum it as a device to muscle out existing operators. The model advocated for new players (especially foreign players) to enter the Indian market is by investing and acquiring a stake in existing players. This brings us back to the issue of FDI, its liberalisation and simplification which has been dealt to some extent in my previous post, “Blow out the candles, Here Comes the Sun”.

I somehow feel that even if new players are not allowed to participate in the bid process even then the bids will be high almost to the tipping point of commercial unsuitability. An apt analogy, which may be applied in this case will be, shots of insulin being put up for diabetics…