Pradip Baijal: Time to revisit the 3G policy

The lesson from telecom, FM radio and cable TV is that lowering licence fees increases usage and raises government revenues.

History keeps repeating itself. We have to decide whether we look at the lessons learnt. I remember 3G auctions created a lot of excitement in the UK and later in some countries in Europe. Huge amounts of monies were earned by the state and everyone was excited about the discovery of a new source of revenue. Some experts believe that the huge monies recovered led to the slowing down of the growth process in these countries. For a long time, Hutch could not come out of the huge amounts it paid for 3G licences and spectrum and perhaps this led to the restructuring of the company including the sale of its shares in Hutch India.

Huge monies were recovered in India in licensing new telecom services including 2G. The high entry fee regime led to the services being very expensive and consequently no growth. Many of the companies would have gone sick if the policy was not changed. The replacement of the entry fee by a declining revenue share regime led to the services being cheap, a huge growth in teledensity and consequently the recoveries to the government were eventually much higher in this route than what was targeted initially in the auctioned entry fee route.

The private FM radio station regime was designed to increase the state's share of revenues as it went forward. It led to such stations almost closing down, till the regime was replaced by a realistic revenue sharing model. Today, we have a booming FM radio industry with all its consequential benefits.

Cable TV was the most interesting example. It came like an explosion while the state kept examining its legality. No one thought of an entry fee or revenue share, till it was realised that it provided connectivity to more houses in India than huge governmental expenditure and taxpayer effort could provide, by way of fixed line telephones.

In another context, the Supreme Court ruled that airwaves are free and for the benefit of people and should be properly regulated. Let us examine this concept. No one taxes river water because everyone uses it. Atmosphere is not taxed since everyone breathes. However, if airwaves are used by a few, they should be taxed as this is an instance of a public property being used by a few.

Many assumed that the telephone would be used by a few and this led to the argument of a huge entry fee, to be determined by a transparent auction. Now that the huge entry fee has been done away with and the revenue share also severely reduced, we are fast approaching a situation where everyone would be using telephones to the huge benefit of the consumers, and ultimately contributing to India's productivity and consequently GDP.

India's biggest asset is its numbers and a huge market. If any service or commodity reaches everyone it can be priced very low. Even the converse argument is true as telephony and the civil aviation markets have shown. The only condition is for the state levies to be very low and the market truly competitive.

It is not as if the government loses at the end. Government recoveries are much higher at very low state levies in the telecom sector today as the market now includes very large numbers. And if the government realises that the levies have been fixed low initially to help the market grow and operators are making unreasonable profits, it can tax the final product. This is being done today by a higher service tax on growing telephony.

We are all aware that in comparison to all other countries, we have allotted a trickle as spectrum to 2G players, since we never believed in this kind of growth. We are also aware that when 3G networks come along, they would be used for voice services only for a long time. Imposing a high entry fee on this service would only kill its growth potential. The government announcement has said that new players would be inducted in 3G services and they would be given 10 MHz each. This would also make such networks highly competitive and they would have the capability of killing 2G services in the long run.

All of us are aware that 2G operators have done India proud. Today, everyone looks at the telecom model where the 2010 target of a 15 per cent teledensity was reached in 2006 and all experts agree that we would reach a 40 per cent teledensity by 2010. Most of the credit for this achievement goes to 2G operators including government ones.

To tell them that we would now import new operators for 3G and continue starving the brilliant 2G operators for spectrum would be extremely unfair and shortsighted. We also know that 3G networks are very efficient. Even at a high price, they would ultimately kill the 2G operators as all high-end consumers would shift to 3G and the new elite service will kill the mass-based 2G service. Even today, the government is aware of this and has stated as much, that 2G operators are far too many and their number should be reduced. To say that we will have new 3G operators at their expense, therefore, looks illogical.

We also have to look at the legality of new 3G players. Since both NTP 99 and the new Unified Access Service Licence allow 2G players to give 3G services, the induction of new players would surely lead to litigation and we would again go back to the pre-2003 days when the entire sector was fighting it out in the courts.

Therefore, consultation with 2G operators must precede the implementation of the new 3G policy.

The writer is former chairman, TRAI