RESERVE PRICE

Subject : Economy

Context : Government has kickstarted the process of auctioning 4G spectrum, approving the sale of 2,251 MHz of spectrum at a reserve price of Rs 3.92 lakh crore.

Concept :

• The auction is expected to be completed by March next year with bidders having the option of either paying the entire amount upfront, or paying a certain amount now, with the balance being paid in annual instalments subsequently.
• However, whether this round of auction will be met with enthusiasm is not clear as high reserve prices have in the past led to poor outcomes.
• For instance, in the previous auctions held in 2016, while the government had offered 2,354.55 MHz of spectrum, it was able to sell just 40 per cent (965 MHz) due to high reserve prices. As a result, it was able to mop up only Rs 65,789 crore.
• This time around, it is possible that telcos looking to renew their licences in bands which are expiring in 2021, and seeking to plug existing gaps, might pick up spectrum in the less expensive bands. But demand for the higher priced bands is uncertain.
• Alternatively, high reserve prices could lead to a situation where bidding is dominated by a single player to the detriment of both competition and consumers.