Broadbanding India needs changed mindsets

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Published: March 13, 2017 4:07:15 AM

For a bright spectral and digital future, what India direly needs is a drastic change in mindsets to recognise that spectrum is a powerful resource for public good

First, post the 2016 big-bang auction, there is the publicly-stated view of both the government and operators that India is no longer deficient in per operator spectrum holding.

Mobile broadband networks are, today, well accepted not only as the foundation for new generation communication services, but also as the critical infrastructure that supports economic growth and spurs innovation in wide-ranging, consumer-centric areas like health care, education, public safety and social welfare. It follows, therefore, that timely allocation of this public resource in an optimised manner is essential for enhancing the socio-economic welfare of the nation.

Regrettably, there are some aspects that continue to limit our approach to spectrum allocation and pricing. Unless, these are remedied soon, India’s broadband ambitions might be impacted.

First, post the 2016 big-bang auction, there is the publicly-stated view of both the government and operators that India is no longer deficient in per operator spectrum holding. This view—a hangover from the obsolescent voice era—is incorrect. Data requirements are growing explosively, estimated to rise ten-fold in the next few years. Consumers are demanding more and more of the innovative, bandwidth-guzzling ‘rich communication services’. One cannot ever have enough spectrum to efficiently cater to the exploding wireless market.

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Global spectrum allocations are, therefore, rising steadily as global administrations and regulators work to facilitate broadband. Spectrum caps are being demolished. India, too, needs to think big and target spectrum holding levels against comparable countries like China and major broadband regimes worldwide.

The biggest challenge concerns the pricing of spectrum. In the aftermath of the events of 2007 and 2008, and the CAG and SC interventions, the government has been understandably focussed on maximising the upfront financial payments to help address fiscal deficit. However, this needs to change and they need to follow the dictum of the SC, ‘spectrum air waves’ are public property. The government should, therefore, take a holistic view of the total benefits to the people and the economy and not just the upfront yields from auctions. High upfront fees actually delay or reduce the other important direct and indirect benefits since operators are left with less funds for network roll-out, which is the real priority.

Since 2010, the introduction of e-auctions led to huge upfront payments, but these have been occasioned by reserve prices that are too high, bearing no relation to the revenue potential of the state or the circle.

The sum of about R3.6 lakh crore is truly staggering. Of course, probably only about R2 lakh crore has come to the exchequer, so far, due to deferred payment option.

The government could have taken a more enlightened win-win view of enhanced benefits to the consumer, itself and the economy/industry. It is well established that each 10% increase in broadband penetration is associated with GDP growth of approximately 1.4%. At the current GDP of about R120 lakh crore (real GDP at constant prices 2011-2012) a 1.4% benefit translates to a staggering sum of approximately R1.6 lakh crore per annum! And, India, which has extremely low broadband penetration, would have benefited enormously if 3G and 4G spectrum had been allocated five years earlier than it was at reasonable upfront prices rather than the high auction prices actually charged. The spectrum was available for assignment and the auction could have been scientifically designed to achieve reasonable rather than excessive prices. Even assuming conservatively that reasonable spectrum prices resulted in 10% improved penetration per year, earlier allocation of the available spectrum, would have benefited India by several lakh crores. Further, this huge potential gain does not include the other large social benefits flowing from plentiful and affordable broadband to the community at large.

Another factor impacting spectrum pricing is the rule that the reserve price of a band in an auction cannot be less than the final clearing price or sale price for the same spectrum/circle in the previous auction. Obviously, there is no cognizance of the law of diminishing returns of economics.

Further, in most of the auctions since 2010, there has been no market discovery of price, but only clearance of the material at the set RP. This goes completely against the idea of an auction. In the last auction, only about 40% of spectrum offered was picked up. To optimise spectrum usage, Sunil Mittal’s proposal of the pooling of all operators’ spectrum in a jointly-owned private company is brilliant. It is rooted in the fact that the technical efficiency of spectrum is highest when it is used as one big block. Fragmented spectrum holding sharply reduces the total network capacity.

Ratan Tata had also made, years ago, a somewhat similar proposal that, to maximise spectrum efficiency and capacity, India should consider a single national telecom network that owns all the spectrum where all existing telecom operators operate as service providers.

Convergence Bill, 2001 had also proposed a five-layered licensing structure, with the base layer comprising a few ‘network facilities operators’ who owned the spectrum.

Today, we have examples of private companies owning pooled mobile towers. However, while in the case of mobile towers, one is dealing with privately-owned property, in the case of spectrum, we are dealing with public property which is in the custodianship of the government. There would be difficulties in overcoming this hurdle.

Changed mindsets are essential to overcome other challenges which include: i) valuation of the pooled spectrum, since different bands and properties and time points would be involved, ii) spectrum valuations are generally much disputed; here, where strong rivals/competitors are involved, there could be great delays in settlement, iii) with a PSU also involved, would it be feasible to get all spectrum into a pool?, iv) how would new spectrum be bought—by the spectrum co or the operators, all of whom may not be interested in the particular spectrum?, v) will government allocate the scarce resource of spectrum to a single private entity—a monopoly?

These are serious challenges, but are not insurmountable and there are possible solutions for each of these.

For a bright spectral and digital future, what India direly needs is a drastic change in mindsets to recognise that spectrum is a powerful resource for public good and that the gains are maximised only when all available spectrum is sold at reasonable prices, and used most efficiently to enable provision of affordable broadband services that deliver the several direct and indirect benefits to citizens and the economy. One recalls Attorney-General Soli Sorabjee, eloquently arguing against a PIL in 1997 that alleged that the government had foregone R50,000 crore revenue to benefit telecom operators. He replied firmly that ‘Yes, uncertain futuristic revenues were sacrificed, not to benefit operators, but to put huge benefits into consumers’ pockets through large tariff reductions worth more than 50,000 crores of rupees!’ The Court dismissed the PIL. We need to apply Sorabjee’s thinking to spectrum.

The author is honorary fellow of IET (London) and president, Broadband India Forum.
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