If the spectrum committee's proposal to auction spectrum is accepted, the kind of scandals the sector has seen will soon be a thing of the past.
An expert committee on spectrum allocation submitted its path-breaking report to the Ministry of Communications and Information Technology (MOCIT) on May 13, three days before election results swept the ruling alliance to power. The report entitled ‘Allocation of Access (GSM-CDMA) Spectrum and Pricing’ offers a consistent, yet practical solution to the crippling disputes that erupted when A Raja further exacerbated the huge demand for spectrum by issuing over a hundred new mobile licences. By expediting this report and implementing its recommendations, he would have atoned for his many sins of omission and commission that have made his return to the old ministry reportedly unwelcome to the prime minister. The report, if implemented, will remove discretion in spectrum allocation and bring it in line with the world’s best practices. This will also reduce the real risk in coalition governments, of handing over telecommunications, an infrastructure sector with a nationwide impact, to parties like the DMK, with a largely regional agenda. The authors of the report come from academia, defence, management, and communications. International experts and current mobile operators associations that represent GSM and CDMA players respectively made presentations to the committee. The committee members met several regulators overseas. They are conscious that old and new entrants in the mobile market may have divergent agenda.
The authors are unequivocal that with up to 15 mobile players in each service area soon, only a transparent market-based system to allocate and price the spectrum would stand scrutiny. Building on regulatory practices followed internationally, the committee recommends that right to provide service (i.e. licence) be separated from the right to use spectrum. Having obtained a service licence through an administrative process, a company must acquire spectrum in open auctions held amongst all contenders.
The myths that Raja relied on while opening the floodgates for new mobile licences, are debunked in the report. Take competition. The report doubts “whether the projected market of 1,100 million subscribers in 2015 can even be served when there are such a large number of operators with a fragmented spectrum”. The authors demonstrate that benefits of competition level off after there are four or five players in the market. With more players, the resulting fragmentation of spectrum prevents economies of scale leading to inefficient use of a scarce resource. This hurts quality of service and raises network costs.
With roughly 360 million mobile connections on the ground, cellular operators are now the biggest stakeholders in an effective spectrum regime. If they have a handle on the amount and price of spectrum that they can expect in the future, they can build their networks accordingly. For instance, if the amount of spectrum available to a company is small, it may need to spend more money on base stations or towers.
Following a genuinely technology-neutral approach, the report proposes all mobile operators (whether GSM or CDMA) receive identical amounts of spectrum and pay a flat usage fee of 3 per cent of their revenues. The committee recommends that India must abandon its unorthodox way of allocating additional spectrum to mobile companies based on the number of their subscribers. This has encouraged companies to inflate their subscriber numbers. It has also hurt services other than voice like broadband or internet that governments and regulators increasingly believe is central to future economic growth. India’s performance in data services lags behind peers like China and is worse than that of smaller countries like Belarus.
Voice services are familiar and popular but competition has trimmed much of the revenues; data services are unfamiliar but could enable many more important and lucrative services, if operators develop them. An operator would decide the proportion of voice and data services that it offers to customers on largely commercial considerations. In India, a company that focuses on data might risk future spectrum supplies since its voice competitors can meet the “subscriber linked criteria” much sooner. This, along with the proposal to levy a common usage charge based on amount of spectrum deployed, will ensure that operators would select technologies based on merit, not on the amount of spectrum bureaucrats allocate to each.
It is regrettable that the report recommends that operators’ fees be based on their revenues — the accuracy of which is notoriously difficult to establish. Fees linked to overall sector revenues, not just to those of a single operator, could reduce the incentive considerably.
The authors of the report also argue strongly in favour of spectrum trading to ensure continued efficiencies in its use — as it will deter speculative bids. Companies that are aware that spectrum can be acquired from the market can also be expected to avoid overzealous bids that can hurt genuine players. To avoid rogues hurting competition by cornering spectrum in the market, the report recommends that no company be allowed to have more than 25 per cent of the total assigned spectrum in any service area.
Having established that competition beyond four or five players in the market does not automatically translate into consumer interest, the report’s authors rightly argue that rules be altered to encourage consolidation of market by helping those who wish to exit or sell their businesses to other licenced players. This is sensible. The current tendency to prevent unearned revenues of players who sell their licences at a premium is understandable but has some flaws. It will compound the damage from selling spectrum at throwaway prices to speculators who are determined to make huge profits. The recommendation that the government must charge a substantial spectrum transfer fee from such players is a more practical option even if it does not prevent them from making a profit.
The report cannot prevent incompetent politicians and bureaucrats or the beneficiary companies to escape the consequences of their actions. It offers the second best option: If its recommendations are accepted, recent mischief in spectrum allocation will be almost impossible in future.
This is significant since spectrum is integral to how effectively we can use wireless technology, our only realistic way to provide voice and broadband services speedily and cheaply. The most strategic part of telecom sector today — i.e. wireless mobile services — will become more ‘minister-proof’ than it has ever been. It would protect India against a serious risk that accompanies coalition politics.
The author is director of Com First (India) Pvt Ltd, a company that specialises in telecom policy and regulation
