Has policy taken a back seat?

High reserve prices and ultra-high bids mean compromise in network investments, especially in small towns and rural areas

deepak

Deepak Kumar | March 31, 2015



In one of the biggest auctions of mobile spectrum the government has fetched a whopping sum of '94,000 crore at the end of the fifth day of the sale process, on March 9. Industry watchers say that if the robust bidding continues the government may touch the '1 lakh crore figure. This is certainly good news for the health of the exchequer. And the telecom industry can pat itself on the back for having contributed to a rise in the GDP before the fiscal comes to an end.

Personally, I think this is a case of overbidding and that operators have committed the same mistake they had made earlier, in 2009, when the first 3G auctions were held in the country.

At a time when the industry is yet to recover from the burden of debts it has landed into as a result of a misplaced notion of demand outlook for mobile data, the high bids will force the players to have their balance sheets further leveraged.

Unfortunately, while the industry has been irrational, the government too has been over-focussed on milking the assets ever too often. Has a short-term economic consideration taken precedence over the long-term vision of the telecom policy?

Spectrum isn’t an end in itself

An argument in this case could be the rate at which mobile data adoption has increased in the recent past. Hence, the industry can expect to recover the huge investment on spectrum in a speedy manner.

However, if empirical evidence is any indicator, the chance of recovering the cost in a short to medium term is highly susceptible. While a Nokia Mbit study this year revealed that 3G data usage grew 114 percent year-on-year, other data sources indicate the growth in number of subscribers is not of the same order.

Also, the pricing power is unlikely to come back to telcos in any game-changing manner. True, operators have affected incremental increase in data rates in the past, but that is just not enough. In fact, state-run operator BSNL recently said it would slash its 3G data rates by 50 percent or more in future. Any such move can potentially trigger fresh price wars.

It is also argued that in some of the advanced markets, carriers spend a high percentage of their capex on spectrum, while in India it is much lower. Hence, the country should spend more on spectrum. 

An important thing to note here is that voice and data tariffs in India are among the lowest globally. The same goes for the average revenue per subscriber (ARPU). Initially, telcos priced their 3G services at a premium, but there were only a few takers at those tariff levels. The rise in adoption happened only after the rates were heavily slashed, in some instances as much as by 80 percent.

Perhaps somewhere in the heat of the bidding process, the stakeholders seem to have overlooked the fact that spectrum is just one of the various other means towards the goals set by various telecom policies, including the one that is in place now.

Investments compromised

The vision statement of the National Telecom Policy of 2012 reads: “To provide secure, reliable, affordable and high quality converged telecommunication services anytime, anywhere for an accelerated inclusive socio-economic development.”

A fair share of operators’ investment also goes into building new networks and expanding and bolstering the existing ones. Ironically, while operators are overly cautious when it comes to investing in networks and related capacities, they tend to go overboard while bidding for airwaves.

It may not be incorrect to say that government too has lost sight of the policy’s vision statement. The high reserve price of the spectrum and a controlled supply helped raise the bid prices to an extent.

But let’s not cry over spilled milk

Now, that a fair volume of spectrum has been auctioned, the joint focus of the government and the industry can shift towards managing it efficiently and making the most out of this asset.

It would help to explore what measures can be taken within the policy framework to ensure that the impacts of over bidding can be mitigated.

And if there is a will, there can be an effective way forward in the form of spectrum sharing. Also, it could be easier than what it appears to be and the gains could be more substantial than what one would imagine. As a Telecom Regulatory Authority of India (TRAI) paper had concluded, by allowing the sharing of spectrum resources, the efficiencies could be raised to remarkable levels – in effect, the sum of two spectrum parts could yield more than two times more than what the individual parts could.

In its recommendation, dated July 21, 2014, TRAI noted: “The gain in spectral efficiency increases non-linearly with the quantum of spectrum. As an example, with 5 MHz of paired spectrum (for GSM technology), it is possible to carry 33.03 Erlang traffic, whereas 10 MHz of paired spectrum can carry 138.6 Erlang traffic. Therefore two operators, having 5MHz spectrum each, can carry 33.03 Erlang traffic each (total 66.06 Erlang). If these operators share their spectrum with each other, they will be able to carry 138.6 Erlangs of traffic which is more than double the sum of their individual capacities.”

Fragmentation doesn’t help

In India, there are seven to 13 licensees (2G, 3G and BWA) in a licensed service area, which is a large number by any global standard, given that many countries such as the UK, Denmark and Sweden have only four to five licensees, as per TRAI.

This has further added to the fragmentation of spectrum assets and their shared pooling would likely be the quickest answer to the problem.

Indeed, spectrum is one of the most precious national resources and as such it is important for all stakeholders to ensure that its utilisation is done in a most efficient manner. Then only the objectives of the telecom policy would be achieved quickly.

In their hurry to address economic needs, the licensers may also have missed that the policy has taken a long-term view of economic development in account. The very first objective of the policy is to “develop a robust and secure state-of-the-art telecommunication network providing seamless coverage with special focus on rural and remote areas for bridging the digital divide and thereby facilitate socio-economic development.”

The currently fragmented state of spectrum assets is an obvious impediment in the way of ensuring superior coverage, especially in rural and remote areas. Given that these areas are often solely dependent on mobile networks for access to the internet, addressing the fragmentation issues becomes all the more important to deliver the socioeconomic impact of mobile for such areas.

 

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