Draft 12th Plan proposes spectrum trading

If all goes well, the government could allow spectrum trading among service providers. This would enable loss-making telecom companies to sell part of their spectrum to others.

According to the draft document for the 12th Five-Year Plan (2012-17), to improve efficiency of natural resources, the idea of setting up a trading platform in the form of a secondary market has  been mooted.

The document will be discussed at the National Development Council (NDC) meeting next week, to be presided over by Prime Minister Manmohan Singh. "Spectrum trading is likely to improve spectrum efficiency, boost market competition and provide incentives to innovation to service providers," the document said.

It has also warned: "It could lead to situations wherein service providers of less profitable services would prefer to sell their spectrum instead of continuing to provide services and which may increase the risk of possibility of concentration of spectrum and market power."

Spectrum trading requires implementation of a successful platform, requiring creation of an extensive automated infrastructure in the form of an exchange or online registry, which entails considerable regulatory costs, the document added.

The Telecom Regulatory Authority of India (Trai) had been backing the idea for many years. The National Telecom Policy of 2012 has also favoured trading of airwaves.

However, the department of telecommunications (DoT) had rejected the proposal, on the fear that it would thwart further investments in telecom infrastructure. Earlier this year, DoT had said the Indian market was not mature enough for spectrum trading.

At present, spectrum trading is allowed in Australia, Canada, New Zealand and some European countries.

Meanwhile, in another scathing attack on policies related to the telecom sector, the draft plan document has blamed the high spectrum prices in the 3G auction for the revenue depletion of the service providers.

"The over-leveraging has, partly on account of the exuberant bidding for 3G spectrum in the auction held in 2010, led to a downward pressure on the revenues and earning capacities," it added.

The government had auctioned 3G and BWA airwaves in 2010, generating gross revenue of Rs 1.06 lakh crore for DoT.

Buoyed by its success, the government fixed the reserve price of the 2G airwaves auctioned in 2012 on the auction-discovered price of 3G.

However, due to the high reserve price of the spectrum, the auction was virtually a flop as the government managed to garner bids worth just Rs 9,407 crore (Rs 94.07 billion) against a minimum target of Rs 28,000 crore (Rs 280 billion). The government is in the process of re-auctioning the spectrum.

The Plan document also blamed  that "the cut-throat price competition for adding customers, without adequate emphasis on provision of value-added services, have further decelerated the industry's growth and put a brake on plans for network expansion as well as provisioning for new services."

Presently, there are six or more telecom service providers in most service areas and are grappling with reduced average revenue per users and high competitive pressures.