Did you know that the telecommunications industry could, single-handedly, save countries from potential bankruptcy? Here’s how it’s done. Firstly, you limit the availability of something in great demand, usually by legislation and heavy regulation (sometimes by mistake), then you hold an open auction for it that runs for weeks on end until all bidders are spent.

I am talking about radio spectrum and it is tantamount to turning air into gold. Spectrum starved Indian mobile operators recently forked out US$14.6B for 3G spectrum then followed up with US$5.5B for BWA spectrum in the 2.3GHz range, ostensibly aligned with WiMAX deployments. When you add in the national license holders BSNL and MTNL that have to pay the same price as the private bidders plus some fees the $5.5B climbs to $8.23B

That’s not bad money in anybody’s language and would probably go a long way to avoid austerity measures in some debt-ridden European economies. It probably explains why so many countries are looking seriously a recovering under-utilized spectrum from the ‘poor’ (usually analog TV and defense allocations) and selling it for an enormous profit to the rich (mobile operators).  Prepare yourselves for a spate of similar events around the world as other economies try to cash in their spectrum reserves.

The only problem with this fantastic jackpot machine is that the money to buy the airspace has to come from somewhere else.  Would-be bidders either have to dig deep into reserves otherwise committed for network and support systems expansion or they borrow it.  Borrowing generates debt somewhere else down the line and the fact that this money is now tied up and not being spent on new infrastructure takes it out of the suppler/partner ecosystems that employ the people that buy the airtime that keeps the mobile operators going. Get my drift?

I hope that has not over-simplified a very complex set of circumstances but the economic theory behind it should be quite clear. However, it will not prevent the practice from continuing and I doubt whether we learned any lessons from the great UK spectrum rush at the turn of the century. Short term gains followed by long term debt woes that stretched far beyond the telco industry and generated a drought in money markets that took years to correct. Fool’s gold, perhaps?