Alternative Scenarios

Posted by Shyam Ponappa at Feb 10, 2010 09:10 AM |
Filed under:
Only about 48 per cent of India is covered by the telecom network with only 20 per cent rural coverage, says Shyam Ponappa. In his article published in the Business Standard on 4 February, 2010, he points out how alternative approaches may enhance extensive coverage.

Like the industrial revolution, India missed the infrastructure systems building stage. As a consequence, even in 2001, the telecom network covered a mere 4 per cent of our population. Now, it covers about 48 per cent, but with only 20 per cent rural coverage. Our need being extensive coverage, the following what-if scenarios explore how alternative approaches might pan out.

The market-driven scenario

One approach is that all that’s required for an effective communications infrastructure is to go ahead with the spectrum auctions — that long-delayed, but always expected “3G” auction, to begin with. Imagine that it happens. What then?

Current policies will result in three winners of 10 MHz each. If they are from among present operators, they could be any three of Airtel, Vodafone, Reliance, Idea, Tata… or one or more new players: Google, Intel… until one of these wins the fourth “3G” slot when that band is made available, and so on. These operators will probably roll out networks and services where heavy traffic is expected, as with 2G so far: more extensively in urban areas. Provided other policies evolve rationally, e.g., that acquisitions are allowed and spectrum holdings can be consolidated, in the long run India may have around five or six large countrywide operators. There may be regional/segment operators with lesser franchises, or addressing specific segments. Each company will incur capital costs for spectrum and network investment, which then must be recovered from users. Network growth is likely to be on similar lines as before.

Take the evolution of India’s telecommunications policies in the 90s, and the desultory state of the sector until the reforms of the National Telecom Policy ’99 (NTP ’99), followed by reductions in revenue share to more reasonable levels in 2002. Even so, the facts show that:

  • network growth is skewed heavily towards urban users; and,
  • broadband coverage is abysmal.

Urban bias in network growth
By November 2009, urban coverage was at 107 per cent of the population, while rural coverage was at 20 per cent. In addition, rural wireless lines grew to 91 per cent, while the wire-line share dropped to 9 per cent; hence the increased importance of spectrum. Networks need more rural reach.

Low broadband coverage

Broadband subscriptions in August 2009 were at just seven million, two million short of the estimate for 2007. According to Comscore, at the end of September 2009, India had under 36 million Internet “unique visitors” (excluding access from Internet cafes, mobile phones and PDAs). This is roughly equivalent to the installed base of PCs, compared with about 560 million phone lines, of which under 40 million are wire-line. Something must be done to increase broadband coverage at lower prices.

The shared-network scenario

Now, imagine what shared-network facilities could do to lower costs, with no duplication of capital investment. Consider the added benefits of shared spectrum as part of this shared network — which, given the fragmented, inefficient present allocation, is the primary need for effective last-mile coverage. Then, add the benefits of substituting revenue sharing for up-front spectrum auction payments. With incentives for performance, the savings in time and money in network build-up and throughput will be immense, while the green footprint from less network hardware will be a double bonus. Government revenues will be far in excess of the foregone auction bids, together with more tax from higher profits, provided the revenue-share percentage is reasonable, as witnessed after NTP ’99 plus reduced revenue-share.

Need for reforms: Networks, spectrum and broadband

Significantly, much of the wire-line rural network is reportedly unsuitable for broadband, because of the length of “last-mile” connections, their quality and the problems of maintenance in difficult terrain. Besides, the cost — more than five times wireless, according to one operators’ association — and difficulty of laying cables in rural terrain, compounded by the impediments of clearances from multiple local authorities, render this impractical. The need is for more coverage with the same investment, even if it is private sector investment.
Therefore, network-building with spectrum reform and broadband need more supportive policies. In particular, incentives and disincentives/penalties are needed for intensive rural coverage as well.

Imagine the IT companies capturing the Y2K opportunity and outsourcing without special communications facilities and tax breaks. Those regulatory measures enabled the development of an essentially outward-oriented IT services sector. Likewise, NTP ’99 with lower revenue-share has led to high growth in telecommunications. This appears to be the best way to establish broadband as an essential infrastructure, especially in rural and semi-urban areas.

Required measures

The initiatives required cover three areas:

  • Policies that make it profitable to build networks and provide broadband services all across the country, not just in heavily-trafficked areas. This will enable communications access to all, providing a platform for service delivery for government and the private sector with tremendous user benefits. These services could encompass education, health and sanitation, extension services related to economic activities, including logistics, telecommuting, entertainment and information.
  • Formulating incentives and implementing them so that the primary objectives are achieved. The public-interest broadband objectives are likely to be on the lines of access anywhere — realistically, in most populated places — at reasonable prices. Key results have to be defined and tracked to ensure achievement. There’s a mountain of work in defining reasonable cost so that many more people can access broadband, while the business is commercially attractive. However, that is a separate issue. It needs to result in a large number having subsidised access, just as they must have access to food, education, and other necessities.
  • Equally important, formulating disincentives that are then applied impartially, so that transgressions that detract from the objectives are penalised.

These issues must be addressed simultaneously from the perspectives of technology, economics, defence and security, and commercial interests, including existing operators’ legacy interests. For this, the government has to work with all stakeholders and specialists to develop solutions with experienced, objective facilitation. Business, government, and consumers can benefit.

The article appeared in Business Standard.

Filed under: