Column : Just create a level playing field for 3G

Written by Mahesh Uppal | Updated: Aug 28 2009, 02:58am hrs
Who should receive spectrum for 3G and Broadband Wireless Access (BWA) and at what price For four years, the answers have eluded the department of telecommunications (DoT), Telecom Regulatory Authority of India (Trai), Wireless Planning & Coordination Wing (WPC) and now, the ministry of finance.

In July, the Prime Minister asked an empowered group of ministers (eGoM) headed by the Pranab Mukherjee, to resolve the impasse. The eGoM, which is to meet on Thursday, can resolve the impasse if it is guided by substantive issues rather than matters of detailwhether technical or commercial..

The rapid advance in mobile communications and the profits it promises to commercial players means that demand for spectrum now exceeds supply in most countries. Almost all major regulators and governments worldwide recognise their limitations in choosing between technologies or business models or specify a price of spectrum. They can scarcely claim greater expertise than technologists and investors in an aggressively competitive area with billions of dollars at stake. Their approach is to be, and appear to be, neutral and create a conducive environment where the best technologies and players can win. Their role is to ensure all can compete and prevent abuse of market. Since all wireless players need spectrum from governments, the latters task is to devise rules for allocation and pricing of spectrum so that all technologies and players can compete fairly. Markets or users can then pick a technology or player that suit them best, much as they would for a detergent, or a mobile handset.

The global trend is to use transparent market-based processes like auctions, to determine who should get the limited spectrum and at what price. The decision to auction 3G and BWA spectrum is therefore in line with practices followed worldwide. However, this decision to auction 3G spectrum is a one-off for India. It does not apply to other spectrum where existing rules have faced wide and deserved criticism and led to damaging litigation. For instance, the amount of spectrum allocated to 2G mobile operators, the price charged for it, and the method adopted to decide it, are different depending on when operators received licences and the technology they use e.g. GSM or CDMA. An equally unorthodox method is used to allocate additional spectrum to operators: a company could get more spectrumat virtually no costwhen it reached a specified number of subscribers without reference to how the spectrum was used. Far from promoting efficient use, the governments decision to issue hundreds of licences in 2008 adds new claimants for spectrum in Indias market with more competitors than in any other country. The 3G/BWA auctions must not be allowed to go that way.

3G and BWA have two important advantages, viz, more efficient use of spectrum than the current 2G services and a chance to correct Indias poor record in broadband access. They can both support faster internet access, richer multimedia, video and music downloads. This can help business as well as individual. Several services like education, health, and governance that are sparse especially in rural areas can benefit from their enhanced data capacity.

Given the above, the delay in the auction of the relevant spectrum is doubly damaging. Even more so is the current obsession with details like reserve prices and the order in which 3G and BWA spectrum should be auctioned. Commercial decisions to deploy 3G or BWA are complex. Companies deploy either technology based on technical and commercial parameters. Cost of network equipment often depends on the spectrum band a company chooses, which would in turn, depend on the allocation of spectrum and its price. Access to funds and estimates of market size, affordability etc, will complicate this further. If the auctions for 3G and BWA are held with different reserve prices or at different times, it is bound to impact the corresponding bids and encourage speculation.

High reserve prices may provide a short-term boost to government revenues in the unlikely event that few players bid. Contrary to the general perception, high auction prices do not raise end user prices. The latter depend on markets. But high bids can delay network growth as in Europe after the 3G auctions. This will hurt poorer areas where markets may be less attractive at first. So, high reserve prices can hurt.

BWA and 3G are fierce competitors in the wireless broadband space much like PCs and Macs are in computing. It is difficult to justify different government rules for them. Strict parity in conditions can prevent market distortions and future controversies. The lessons for eGoM are clear. Any rule or provision that treats competitors differently must go.

The author is a telecom consultant