Take 'Model T' for Telecom

The 2G spectrum troubles give India an opportunity for clear thinking and purposive action for a significant impact on people’s lives. We (all stakeholders: operators, central and state governments and agencies, the media, opposition parties, PSUs and private corporations, and citizens) need to recognise that there are two distinct aspects to the wrangle: legacy problems and the way forward. The 2G controversy has to do with the truth and consequences of legacy actions. The way forward concerns our fundamental purpose, i.e. the delivery of effective and efficient communications services. What then must we do?

1. Past problems: Follow due process
Many commentators and sections of the public take a shotgun approach, demanding the cancellation of licences and auctioning confiscated spectrum. This is outside the purview of the law and will destabilise the sector and the economy, as will any arbitrary government action.

In a democratic society, there is a proper way to address these problems: through the due process of law, not summary judgements ending in figurative lynchings. There are contracts with operators, and we have to learn to respect and enforce the law. Use harsh penalties by all means, but only after (a) going through due process in establishing the facts, (b) provided there is evidence of culpable wrongdoing, and (c) the law calls for harsh penalties. If the law calls for a slap on the wrist, we need to change our laws for serious crimes, not resort to mob violence in the guise of righteous outrage.

2. Present and future needs: Approach needs with a sense of purpose
A different aspect of the predicament relates to how we can achieve improved communications infrastructure and services in India. This includes broadband Internet, voice telephony, TV and radio. We need a constructive approach encompassing services, hardware and software, instead of being mired in outmoded practices based on exclusive spectrum allocation, for example. Our focus has to be on our purposes/needs: ubiquitous access at a reasonable price. We need broadband for every household. How do we get it? (Click for graph)

Capitalising on the low-margin model
The growth of mobile telephony provides a workable model. The graph above shows the rise in subscriptions with declining prices after the shift to revenue sharing in NTP ’99, together with reductions in revenue share percentages for licence and spectrum fees, and in the access deficit charge.

This is a good instance of Henry Ford’s low-margin, high-volume strategy for the Model T. To sustain low tariffs extending to broadband, we need to reduce extraneous levies. A Trai study of 2005 showed government levies on telecommunications in India were far in excess of China, Sri Lanka and Pakistan.*

The study also showed that licence fees from the original auctions would have amounted to Rs 19,314 crore through 2006-07. According to the CAG report, licence and spectrum fees with reduced levies actually amounted to Rs 40,169 crore by 2006-07, i.e. double the auctions; by March 2010, the figure was nearly Rs 80,000 crore.** Over a long period, reduced revenue share for licence and spectrum fees has resulted in explosive growth as well as higher government collections than auctions and high fees.

The study also showed that licence fees from the original auctions would have amounted to Rs 19,314 crore through 2006-07. According to the CAG report, licence and spectrum fees with reduced levies actually amounted to Rs 40,169 crore by 2006-07, i.e. double the auctions; by March 2010, the figure was nearly Rs 80,000 crore.** Over a long period, reduced revenue share for licence and spectrum fees has resulted in explosive growth as well as higher government collections than auctions and high fees.

Initiative by ministry or PMO?
Why can’t the communications ministry, the DoT and Trai effect this transformation? Recall the scope of NTP ’99 and the role of the Prime Minister’s Office (PMO) for these reasons:

First, reduced short-term government revenues. In the long term, the revenue sharing in a vibrant sector far exceeds the auction take, as shown above. Recall that the primary motivation for the licence auctions of the 1990s and the spectrum auctions was collecting government revenues. Hence, the first criterion is the stance of the finance ministry and the government on revenue collection.

A second criterion at the state level is also financial, for rights of way charges.

Third is India’s approach to spectrum management. Spectrum use can be structured like road or rail networks, or oil pipelines, instead of being treated as exclusive property or usage rights. The difference in costs and benefits to society is staggering. It’s like the right to use daylight or the air we breathe. Visible light is a part of the same electromagnetic radiation, so if there is a charge for radio frequency spectrum, why not for visible light and/or the atmosphere? Rentiers might see this as an opportunity for revenues, but democracies surely must consider it against the public interest.

Existing networks of various government undertakings, including PSU operators BSNL and MTNL, PowerGrid, Gail as well as private operators, could be managed as national assets, as described above for spectrum on payment for usage. This need not mean government control and administration, as there could be a consortium with government participation. There are compelling economic reasons for public access to spectrum and networks because of the drastic reductions in investment, with higher asset utilisation, environmental benefits from less redundancy, and reduced radiation from towers, as in one highway network instead of many.

The opportunity
Even as the law takes its course on wrongdoings, we need a new “New Telecom Policy” on the lines of NTP ’99. This is essential for transformational changes in communications services, clearing up confused policies that are at cross-purposes, and extending to boundary domains in ICT. We should aim for “Model T” pricing with access for everyone. We need an across-the-board initiative to replicate the successful aspects of mobile telephony for broadband and other forms of communication (TV, radio). The PMO could orchestrate a workout with all stakeholders that builds in the benefits of shared network resources, including spectrum, with efficient, low-frequency spectrum for rural communications with much less capital investment.

* Study Paper on “Indicators for Telecom Growth”, Trai, 2005: http://www.trai.gov.in/trai/upload/StudyPapers/2/ir30june.pdf

** “Performance Audit Report on the Department of Telecommunications, Ministry of Communications and Information Technology”, http://saiindia.gov.in/cag/union-audit/report-no-19-performance-audit-issue-licences-and-allocation-2g-spectrum-department-tele

Read the original in Business Standard here