India’s Spectrum Auction — The Lost Opportunity

March 8, 2015 by Indro

Once size does not fit all that had been the mantra of the pioneers of the radio spectrum design and the modern market design experts. The Indian government is conducting its radio spectrum auction on 3G and on the face of it this is set to generate huge revenue which could very well be the real objective of the Government, but it is as today’s Economic Times article by Mahesh Uppal ( points out grossly out of sync with the digital India plan.

The biggest jump in the 3G spectrum from the 2G spectrum is in data capability which seems to be the big thrust of the Prime Minister’s agenda or at least that is what he tells publicly. Yet, there is hardly anything in the design of the auction that caters to that objective. The design in itself is a variation(with some modifications) of the internationally accepted simultaneous ascending bid auction that its developers McAfee-Milgrom-Wilson had proposed. That was for the US – a rich country where where people are largely capable of paying their basic cell phone bills. The other successful designs were for countries like the UK, Germany, etc. Again, rich countries.

In contrast India is a country where more than half the population cannot even afford even the basic necessities of life. A country where in large parts there are no roads or drinking water much less electricity for regular consumption. A good design would have been one that had used this opportunity to get the cellular companies to make the necessary infrastructure and product development that would give more than half the population access to education, literacy, basic information, etc.

The auction design had to be completely out of the box thinking and a complete redesign for a different purpose altogether. Most people do not realize the kind of impact cellular phones and internet have had on India’s development since the 1990s. It has made the complete lack of communication infrastructure evaporate for many and particularly those who were capable of taking advantage of the opportunity that it provided. The 3G spectrum auction missed out the opportunity to involve the private sector in yet another revolution of that sort but at a much larger scale simply because it tried to essentially copy the designs that have been so successful in the developed countries. The need was to involve the pioneers of the radio spectrum auctions and market design people to do a complete rethink in the Indian context. That possibility now stands squandered away.

Cheap Talk

A blog about economics, politics and the random interests of forty-something professors

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