5G Auction: Can India Really Afford to Squander Hard-Earned Resources on BSNL?

On 27 July, the day the 5G spectrum sale was practically over, the government announced a ‘revival’ plan for BSNL.

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The 5G electromagnetic spectrum is the most valuable natural resource today for the fast-emerging global digital economy and society. India cannot miss this bus any longer if it wants to be a significant economic power or wishes to have a serious crack at making itself a $10-trillion economy.

The government, the custodian of common resources, is the owner of the 5G spectrum’s 700 MHz, 3 GHz and 26 GHz bands. But the government has to allocate it to businesses to build a 5G services network and deliver services thereon. Unsold spectrum is spectrum lost.

The government has not been able to get the monkey of 2G notional loss off its back for the last five years. It has been trying to sell the 5G spectrum at prices exceeding Rs 5 trillion since 2018, without any success. Finally, this time, with some reduction in spectrum prices and by abolishing spectrum usage charges, the government could put up a 5G spectrum for sale on 15 June.

• The government has been trying to sell the 5G spectrum at prices exceeding Rs 5 trillion since 2018, without any success. This time, it could finally put up the spectrum for sale, albeit with only partial success.

• But ironically, on 27 July, the day 5G spectrum sale was practically over, the government also announced a ‘revival’ package of Rs 1.64 trillion for BSNL. That says a lot about the mess India's telecom sector is in.

• With less than 10% of India’s telecom subscribers using BSNL or MTNL, that too for 2G services mostly, these companies serve little public purpose except employing thousands of people.

• It is not in the national interest to squander away hard-earned revenue from spectrum sales towards keeping BSNL & MTNL artificially afloat.

The Sorry State of India's Telecom Sector

But the government has succeeded only partly. In total, it will receive royalties in excess of Rs 1.5 trillion over the next 20 years. Over 60 countries across the world already have 5G services. Now, Indian businesses and people can also hope to use 5G in the next couple of years. Good for the Indian economy and people.

But ironically, on 27 July, the day 5G spectrum sale was practically over, the government also announced a ‘revival’ package of Rs 1.64 trillion for BSNL. In 2019, the government sanctioned a Rs 700-billion package. As part of that, BSNL was expected to launch 4G services. But that did not happen. The new package re-instates this hope.

The sale of the 5G spectrum partly and the announcement of yet another ill-fated rescue package for BSNL the same day speak volumes about the mess the telecom sector is in.

Government Gets It Partly Right This Time

The government offered a total of 72 GHz spectrum for sale in the auction. The sale concluded on 28 July. All bidders got the requisite spectrum in all 22 circles in the 26 GHz and 3 GHz bands. This spectrum was sold at the reserve price only. About a third of this spectrum remained unsold. One bidder bought spectrum in the 700 MHz band as well at a still-quite-steep reserve price. The government had failed to sell the 700 MHz spectrum in previous auctions. This time again, 60% of the 700 MHz spectrum remains unsold.

Some other spectrum bands were also on offer. Except in one or two circles for the 1800 MHz band, there was no competition. Some spectrum bands such as 600 MHz & 800 MHz saw no interest, and others such as 2100 MHz and 2300 MHz saw a highly muted demand.

The government will collect Rs 1.5 trillion in revenues from this spectrum sale. However, a considerable spectrum still remains unsold and will be wasted.

Spectrum Prices Have Been a Major Failure

India’s policy affair with telecom licencing and spectrum sale has been torrid right from the beginning, ie, the 1990s. In the first phase lasting until 1998, the government wanted fixed prices. Chasing unknown dreams, the industry overbid. Within a few years, the system collapsed. The government had to rescue the sector by migrating telecom operators from a fixed price regime to a revenue-sharing regime.

This change and a rapidly growing economy made the pendulum swing to the other extreme. Telecom operators made a huge killing. The government allocated spectrum virtually free of cost on a first-come-first-serve basis. This phase lasted till 2010 and corrupted the system, culminating in a horrible 2G scam. The Comptroller and Auditor General (CAG) computed the notional loss at Rs 1.76 trillion. The Supreme Court cancelled licences, and the sector collapsed again. This fallout, accentuated by the AGR imbroglio, made India literally a two-horse telecom country.

The collateral damage of this entire episode made the Telecom Regulatory Authority of India (TRAI), the regulator, and the government completely risk-averse. Spectrum reserve prices were fixed at levels that had no takers. The government wanted over Rs 5 trillion from the 5G spectrum sale. But for the last three years, it has been repeatedly failing at selling the spectrum at such ridiculous prices.

The fact that 3 GHz and 26 GHz had no history to make their reserve price comparable to anything received in the past made the government a little more reasonable in fixing the reserve price thereof this time. However, the 700 MHz band, despite a 40% reduction from earlier levels, was still considered too costly.

The two operators left in the field, who are comforted by the fact that they will have pricing power, have bought the minimum necessary 5G spectrum at the reserve price. Still, a substantial part of the 5G spectrum has remained unsold. The reserve price is not the market price.

It will be advisable that the government rescues itself from this trap of over-fixing reserve prices, fix the right price and offer the remaining 5G spectrum for sale soon.

Time to Let BSNL and MTNL Go?

The two telecom companies are not offering 4G services. There is no likelihood of these ever offering 5G services. With less than 10% of India’s telecom subscribers using BSNL/MTNL, that too for 2G services mostly, these companies serve little public purpose except employing thousands of people. In 2019, their employees’ cost was about four-fifths of their revenues, whereas other telecom companies operated at 5% employees’ cost. The government paid about Rs 30,000 crore in grants to pay for voluntary retirement costs of about 60,000 employees.

BSNL or MTNL don’t pay for the spectrum. The government provides equity support to cover these costs and for establishing networks. In the new package, the government is converting all the revenue dues into equity as well. Soon, BSNL/MTNL will have equity capital of over Rs 1 lakh crore while generating only about Rs 15,000-Rs18,000 crore in annual gross revenues.

The government is underwriting all their debts. Most probably, in the next ‘revival package’, the government will be taking over all their debt, as it did with Air India.

The government cannot make BSNL ‘profitable’ via these phoney revival packages. It must let these two companies shut shop at the soonest. Let there be no more capital investment, including in setting up a 4G network.

Existing customers, towers and other assets (except land and building) can be sold off to other telecom players. Land and buildings should be transferred to the Land Management Corporation.

It is not in the national interest to squander away hard-earned revenue from spectrum sales towards keeping BSNL & MTNL artificially afloat.

(Subhash Chandra Garg is Chief Policy Advisor, SUBHANJALI, author of The $10 Trillion Dream, and former Finance and Economic Affairs Secretary, Government of India. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)