But he may find it difficult to avoid the spotlight for long as the recommendations relating to spectrum pricing for auctions is something that brings out either the best or the worst in Trai chiefs – one either becomes a darling of the industry or is despised for having destroyed it. Regulatory capture is a favourite term spoken in hushed tones in the telecom industry.
When P D Vaghela was appointed the chairman of the Telecom Regulatory Authority of India in October 2020, senior journalists covering telecom received lot of calls from industry executives who wanted to find out more about him. There was a reason for this: Most Trai chairmen in the past had earlier served as secretary in either the department of telecommunications or some important economic ministry at the Centre, and therefore the industry had a certain degree of familiarity with them.
But Vaghela was secretary in the department of pharmaceuticals in the ministry of chemicals and fertilisers, and was therefore an “unknown commodity” as far as the telecom industry is concerned. Since he belonged to the Gujarat cadre of the Indian Administrative Service, only officers from the state knew him because he did some excellent work as the chief commissioner of sales tax, where he was instrumental in drafting the Goods and Services Tax laws, fixing rates as convenor of the fitment committee.
But the unfamiliarity factor didn’t last long. Though 2020 was a pandemic year with physical meetings restricted, it didn’t take much time for either the industry or telecom journalists to get to know him. Accessible and friendly, he met one and all and said that he would want to learn from them as he moved ahead.
Most Trai chairmen acquire a certain degree of flamboyance while in office, exposed as they are to various lobby groups of the telecom sector. To be fair, Vaghela would be completing two years in October this year but he has shunned the limelight so far quite successfully.
But he may find it difficult to avoid the spotlight for long as the recommendations relating to spectrum pricing for auctions is something that brings out either the best or the worst in Trai chiefs – one either becomes a darling of the industry or is despised for having destroyed it. Regulatory capture is a favourite term spoken in hushed tones in the telecom industry.
Vaghela, whose name so far would have appeared in the media for some innocuous lectures delivered here and there, is suddenly in the news with the telecom industry expressing deep disappointment with his pricing recommendations. He has responded saying that the same are rational and based on scientific calculations, but as days pass he would certainly have to put up a more detailed and spirited defence.
His recommendations may have been criticised in terms of degree – the industry wanted reduction in prices by 90-95% and what they got is a reduction by about 36% — but he certainly changed the manner in which the regulatory body calculated and fixed the reserve price. Prior to Vaghela, Trai used to benchmark the reserve price to prior auction-determined price. However, there was a flaw in this. Even if 2 Mhz of spectrum got sold in an auction and 8 Mhz went unsold, Trai would take the rate of 2 Mhz as market discovered. It would then scale up this price with an appropriate index — cost of inflation — to determine the reserve price for a subsequent auction. In the circles where no sale happened, Trai used a ground-up-based model to determine spectrum valuation and then pegged the final reserve price as 80% of that valuation.
Vaghela tweaked this model. So, if the total spectrum up for auction was not sold, the price for the sold part was not taken as market-determined. Instead, a ground-up model was used to determine the valuation of that spectrum. Further, he diluted the 80% to 70% to arrive at the reserve price. Since around 60% spectrum went unsold in the 2021 auctions, this new approach brought down the reserve price.
The problem was that a total delinking from the past could not be done as there were also price linkages between different bands. So the prices still continue to be high and may affect the proper, full-scale rollout of 5G services which provide a proper mix of voice and data.
Perhaps,Vaghela would need another shot, maybe next year to complete the clean-up exercise he has begun. Till then, he has no choice but to defend his recommendations spiritedly.
