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(GIST OF YOJANA) Radio Frequency Spectrum Allocation

[May-2021]

The 2020 Nobel Prize in Economics was awarded to two economists–Paul R. Milgrom and Robert B.Wilson–who populated the auction theory, especially since the introduction of USA’s spectrum auction in 1994.

Classifications of auction types:

Auctions are broadly of two types: Single and multiple items auctions.
Classical auctions are of four types: English auction, Clock or Dutch auction, First-price auction, Vickrey or Second-price auction.
The modern form of auction extended to the private value models and ex-ante asymmetries. Vickrey also found the First-price auction to be inefficient with asymmetric bidders, as opposed to the Second price and English auctions, which are always efficient. These are due to the issues of revenue generation.
The multi-object auction applies in the case of homogenous or divisible objects like government debt and electricity and the heterogeneous or non-identical multiple objects such as radio frequencies or bus routes, which are of either complements or substitutes. These involve exceptionally large values, and governments face a challenging trade-off between raising revenue and allocating the spectrum efficiently.

Government intervention and guidelines:

The Government intervention in India has become apparent because of the exponential rise in demand for wireless communication, given radio frequencies a scarce commodity, the underneath conflicts in spectrum management and their efficiency of use. The International Telecommunication Union (ITU) proposes four different approaches for the valuation of the spectrum. They are:

1. Price from previous auctions duly indexed,

2. Estimation based on producer surplus,

3. A production function approach, and

4. A revenue surplus approach.

TRAI also uses a multivariate regression method in addition to these approaches.
There are often disputes between the state and the operators in allocating and managing spectrums in India.
However, India has been following a ‘quasi-property rights’ regime to avoid the subjective administrative management to a market-based mechanism.