5G Spectrum – Is it a distress sale? CAG may look at it carefully



Shri G C Murmu


Dear Shri Murmu,

The Department of Telecommunications (DOT) in the Ministry of Communications has just finalized 5G spectrum auctions. According  to the Ministry’s statements, out of the 72,098 MHz of spectrum put on sale, the government has realised Rs 150,173 Crores from the sale of 51,236 MHz of spectrum that could be sold. Most successful bidders will perhaps opt for paying the amounts due in annual installments extending upto 2041, as permitted by the DOT.

How competitive are the 5G auctions?

Looking at the Demand Notes issued by the Ministry on 5-8-2022, it is evident that there were only four players bidding in the auction but the major chunk of the auction had gone to a few players without any competition whatsoever, which raises serious public concerns at the manner in which the Ministry had rushed into auctioning such a large space of valuable spectrum, knowing well that the number of bidders would be highly restricted as per the terms of bidding, practically eliminating any worthwhile competition.

For example, in the case of 700 MHz & 800 MHz bands, Reliance Jio cornered 60 blocks comprising 334.25 MHz, apparently without any worthwhile competition, quoting very close to the upset price, accounting for a total bid price of Rs 40,191 crores, constituting 46% of the amount realised by the government from that company. Similarly, Airtel perhaps faced no competition whatsoever, in 900 MHz and 2100 MHz bands and won 70 Blocks comprising 42.8 MHz, once again paying close to the upset price, amounting to Rs Rs 4,400 Crores, constituting 10% of the total amount paid by that company. Even in the case of the remaining bands put to auction, only two or at most three players were in competition, prepared to quote prices almost on par with the upset price levels, making a mockery of the so-called “competitive bidding”.

The upset price administratively fixed by the DOT, in itself 30-40% less than the price originally recommended by TRAI, does not  indicate the potential value of the spectrum. If the DOT were to fix the upset price at the originally TRAI recommended level, assuming that the bidders would quote at that level, the additional amount that would have accrued to the DOT would be Rs 64,360 Crores, which in itself would not reflect the true incremental value of the spectrum. The notional losses in the 5G auctions could therefore be far higher.

The only way to discover the price of 5G is through intense competition, with a large number of competent players bidding for it, as against one or two, as is the case now. Once the true potential value is assigned to the spectrum, it will drive the successful bidders to adopt innovative ways to put it to its most efficient use and at the same time make it marketable. To assume that a high price of the spectrum will erode consumer welfare is erroneous, as corroborated by several research studies available. Any policy to price a scarce item below its potential value, in the hope that the private company using it and selling the final product to the consumers at an affordable price is inherently flawed. Instead, it is always prudent to price it in tune with its potential value and pass on the intended benefit to the beneficiary in some other way, if the company selling it is a privately owned one, as such a company then necessarily seeks to maximise its profitability.

In the specific context of India, it is doubtful if the low-income households can afford to buy 5G-compatible mobiles and whether the use of 5G technology in anyway adds value to their lives, as most of them stand deprived today of adequate access to basic amenities that one requires for leading a life with dignity.

Is DOT acting in haste to hand over precious spectrum to private companies for 20 years?

There was no need for the government to rush into such a large-scale auction exercise, covering a wide range of bands of spectrum, which is in reality held by the government in trust on behalf of the people. As explained below, the DOT could, in the first instance, have deployed its own CPSEs by preparing them in advance to tap the 5G technology. It could have ramped up its R&D effort through C-DOT to be able to develop in-house indigenous capabilities. It could also have systematically built up its indigenisation effort over the last few years in respect of the other inputs needed by the telecom industry to ward off foreign dominance. There has been a failure on the part of the DOT on all these fronts.

Do spectrum sales provide “additional fiscal resources”?

One justification put forward by the government for selling the spectrum is that it will yield “additional fiscal resources“, an argument that is fallacious, as the private players raise most of such resources from the same pool of savings in the economy from which the government can readily raise more resources on much better terms, without having to lose control over valuable spectrum in an undue haste. Incidentally, the successful bidders of the spectrum will anyway secure most of the funds from the PSU banks, not from their pockets. In other words, the risks involved are not borne so much by those private players but passed on to the PSU banks, as it had happened in the past.

It appears that the government, instead of being fiscally prudent, is allowing itself to face an avoidable fiscal deficit and justify raising resources for bridging it by selling its assets indiscriminately. Instead, the government could readily narrow down its fiscal deficit by pruning many inessential, unproductive items of expenditure and raising additional resources by resorting to redistributive taxation that will simultaneously fulfil its obligation under the Directive Principles to reduce income inequalities and concentration of wealth. For reasons best known to it, the government is shying away from that obligation.

CPSEs’ role:

It is imprudent on the part of the government in the first instance to ignore the telecom CPSEs in entrusting the spectrum, considering that it is those CPSEs that have been instrumental in nurturing the growth of telecommunication services across the length and the breadth of the country, including the rural and the remote areas. CPSEs, being an arm of the State under Article 12 of the Constitution, can legitimately use the spectrum in furtherance of the government’s welfare mandate.

In the use of 5G spectrum, the government can draw useful lessons from the Chinese approach in which the Chinese government has consciously nurtured and strengthened its State-owned telecom companies not only to operate domestically but also aggressively dominate the global telecom scene, whereas, in India, the government is constantly berating its own CPSEs, placing hurdles in their way, weakening them deliberately and allowing them to bleed (https://www.thehindu.com/data/data-how-bsnl-bled-the-story-behind-public-telecom-giants-fall-in-6-charts/article65758495.ece), threatening to sell their valuable assets to private companies, all on the fallacious assumption that private companies operate more efficiently, without understanding the different roles of private companies and CPSEs. The former are driven exclusively by the profit motive, whereas the CPSEs are bodies set up under Article 19(6)(ii) and they are obligated to help the State discharge its welfare mandate laid down in the Directive Principles.

Implications of private companies controlling the use of the spectrum:

With the prevailing regime of relaxed levels of FDI intrusion into the ownership and control of private companies in the telecom sector, there is no guarantee that the spectrum sold would not slip into the hands of foreign players. It is somewhat disconcerting that the notice inviting bids for the 5G spectrum auction should say, “any foreign applicant will need to form or acquire, an Indian company, to obtain a Unified Licence“, which amounts to extending an open invitation to foreign companies to acquire the domestic companies in the telecom sector, a questionable proposition by any stretch of imagination.

Defence applications of 5G:

Spectrum usage for 5G is strategic in nature, as it has high speed, greater bandwidth, and lower latency internet network that will be ideal for various military and defence applications.(https://www.financialexpress.com/defence/what-will-5g-do-for-military-and-defence-applications/2489092/). 5G has wide applications in operating unmanned vehicles. Both 5G & 6G technologies can help the defence forces to penetrate the enemy’s hypersonic missile shield (https://eurasiantimes.com/chinas-new-super-6g-tech-can-penetrate-hypersonic-missile-shield/)

Considering that some of India’s neighbouring countries with territorial ambitions are investing heavily into the 5th and the 6th generation spectrum usage for cyber applications using artificial intelligence, India cannot afford to squander away the valuable spectrum by giving it at a distress price for allowing a few domestic private players ro profiteer at the cost of the public exchequer. Once allotted, the sold spectrum bands get locked up for 20 years, far too long a timeframe to use the spectrum in order to take advantage of the rapidly evolving technologies for new defence applications.

Had the government prepared the telecom CPSEs sufficiently in advance to use the 5G spectrum, they could be also closely involved in working in tandem with the defence agencies so that spectrum usage could be used in a strategic manner, without compromising on providing high-speed communication services to the people.

Inadequate R&D preparedness:

Visualised by Sam Pitroda, C-DOT was set up in 1984 as an autonomous telecom R&D centre and, fully supported by the then government, it triggered an indigenous telecom revolution, which has brought the Indian telecom industry to what it is today. Unfortunately, during the last several years, the Ministry has not paid enough attention to the role that C-DOT could play in preparing the country to keep pace with the rapidly developing telecom technologies and build self-reliance in the field. The budgetary support for C-DOT’s R&D efforts has stagnated and, only at the last minute, when it is too late, the Ministry took steps to involve that organisation to indigenise the 5G technology.

At Para 88 of their 23rd Report to the Parliament, the Standing Committee on Information Technology on the Ministry’s Demand for Grants for 2021-22, quoted the Department as follows.

the Department informed that compared to the billions of Dollars of R&D budget of major telecom R&D players worldwide, the amount of funding received by C-DOT for undertaking its R&D activities is meagre. The amount of funding received is just enough to cater for the Salary & other staff benefits and hardly any money is left for Capital Expenditure”.

It shows how the government had neglected an excellent R&D organisation like the C-DOT and was thoroughly ill-prepared to convert the opportunity of the 5G & 6G te-hnologies to its advantage. In such a situation, there can be nothing more imprudent than to put the spectrum to auction in a hurry for 5G usage.

Dominance of a few foreign agencies in telecommunication services in India and the Ministry’s response:

In the recent 5G auctions, DOT has prohibited companies based in some neighbouring countries from bidding, though it is always possible for such companies to sneak into the country through the wide openings permitted by the government in the form of highly relaxed FDI inflows into Indian companies.

In their 13th Report to the Parliament, the Standing Committee on Information Technology on the Ministry’s Demand for Grants for 2019-20, pointed out as follows.

“The Committee note that India is highly dependent on import of telecom equipment to meet their demands in the country. This indicates that domestic industries are clearly unable to meet the demand and the country lacks the requisite eco-system for the promotion of domestic manufacturing of telecom equipment. During 2016-17, India had imported telecom equipment worth Rs.1,13,057 crore, Rs.1,41,168 crore in 2017-18 and Rs.1,24,992 crore in 2018-19. China remains the number one country from where India is making the maximum import. The Committee feel that the import of telecom equipment will increase substantially with the introduction of newer technology like 5G and desire to know why the Department have made no plans to develop 5G indigenously”

According to some reports, “China’s imprint is deep in India’s telecom sector. Take the state-owned telcos, BSNL and MTNL, for example. Around 44 percent of BSNL’s mobile network equipment has been supplied by ZTE. Huawei’s share is 9 per cent. Ten percent of MTNL’s mobile network equipment has been supplied by Chinese equipment manufacturers. Vodafone Idea Ltd and Bharti Airtel follow a multi-vendor strategy, but 30 to 40 per cent of their network has a Chinese contribution. Smartphones of Xiaomi, Oppo, Vivo and Realme are ubiquitous in the domestic market, with a dominant share of 79 percent in Q2 2021 (https://www.southasiamonitor.org/spotlight/can-india-china-proof-its-telecom-sector)

Realising this, the DOT has introduced a “Production Linked Incentive” scheme (PLI) to encourage private companies to undertake production of critical telecom items so as to indigenise the industry progressively to reduce dependence on countries like China. Such a scheme had been introduced as recently as in the first quarter of 2021, too little, too late. Moreover, as already stated, foreign companies can always make an entry through equity and other investment routes into domestic private companies involved in the PLI scheme.

Considering that the spectrum bands are in the nature of a valuable natural resource that belong to the public, it is imperative that it is put to optimal use for the common good of the society in terms of Article 39 (Directive Principles). The use of mobile technology is but one among many uses for which the spectrum can be deployed. Technologies are rapidly evolving for the usage of the spectrum and new opportunities emerging every day with new challenges to be faced.

Spectrum is also going to play an increasingly expanding role for the defence of the nation and upholding its security.

In such a situation, to exclude public access to the spectrum by alienating it to private agencies, that too, allowing them to have control, at unconscionably low prices, for 20 long years or even more, would run counter to the intent underlying the Constitutional provisions relating to the use of natural resources. The only way to ensure the use of the spectrum in harmony with the national interest would be to entrust the same to the CPSEs.

Against the above background, I would earnestly appeal to the C&AG, designated by the Constitution as the national auditor to render advice to the Parliament, to undertake an urgent performance audit of the latest 5G auctions, the notional losses that were incurred as a result of non-competitive bidding procedure followed, the risks arising on account of handing over the spectrum to private parties immediately but allowing them to pay the dues over an extended timeframe upto 2041, the opportunity cost of alienating the use of the spectrum to private companies, excluding it for defence and other strategic applications, the costs arising as a result of the state of unpreparedness on the part of the DOT in terms of inadequate R&D effort, absence of indigenisation plans in the telecom sector and so on.

The office of the C&AG had always been instrumental in pointing out to the Parliament from time to time, the shortcomings in policies on the use of precious natural resources such as coal and spectrum, which in turn has helped the Parliament to exercise an effective, constructive oversight on the executive. As such, the public at large repose a great deal of trust in the office of the C&AG.

As a concerned citizen, I am confident that your office will undertake an audit of the kind indicated above without losing any time, as any delay in this could result in further damage being caused in the matter of 5G auctions. Such an audit, I am sure, will slso pressure the DOT into taking up advance planning for taking advantage of the next generation technologies in the use of an invaluable resource like the spectrum.


Yours sincerely,

E A S Sarma

Former Secretary to Govt of India


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