Second, such a mechanism will be non-discriminatory as the potential new entrants will be placed at par with existing operators. A first-come, first-served policy obviously favours current operators and even leads to the attenuation of competition. This is quite evident, as there are 575 mobile telecom service applications, from about 40-odd companies, 15 of which wanting a pan-Indian licence, that are pending. However, scarcity of spectrum is cited as a reason for the queue. It is impossible to determine the scarcity of a resource in the absence of a price discovery. Similarly, given the incentives, it is quite possible that it is underutilised by the current operators. Moreover, defence is sitting on a large amount of high commercial value spectrum, with a huge opportunity cost of usage. The resources required for defence to vacate this spectrum and move to other spectrum bands are small in comparison to the opportunity cost.

Third, once priced correctly through auctions, the government will be able to raise a large amount of resources to finance its social welfare programmes. The resources can also be used by defence to buy equipment in other bands, once it vacates the commercial spectrum. Finally, auctions will eliminate the arbitrariness inherent in the specification of criteria and the consequent evaluation of the plans. This arbitrariness of the ‘beauty contests’ makes the process time-consuming, opaque, prone to controversy and vulnerable to lobbying, creating the perception of favouritism and corruption. Indeed, some governments choose beauty contests precisely in order to favour ‘national champions’ over foreign firms. But can this protectionism be justified?

... contd.