A licence raj mindset on spectrum

The commonly used term air waves is what the industry refers to as spectrum. That might explain why the government's policy on spectrum has behaved like air waves - blowing differently in different seasons, and not always serving the objectives of larger societal, subscriber and sectoral benefits.

Who is to blame for the mess in this scarce national resource which could have a huge multiplier effect on the economy? Perhaps all stakeholders are equally responsible, and, strangely, they have all work to their own detriment.

Why is there so much fuss about spectrum? Limited availability makes spectrum, which is at the core of wireless communications, a hugely valuable national resource. Our total spectrum could fetch between $50 billion and 100 billion, depending on boom or bust times.

If this is deployed correctly, meaning differently for voice telephony (2G and 2.5G) and broadband (3G or 4G also called WiMAX or LTE), its multiplier effect can harness much bigger value for the economy. But multiple lobbies have derailed a clear perspective on how this scare resource should be used.

So far the policy has been approached only with a licence raj mindset in allocation of this scarce resource, while overlooking and diluting its real value. The result: Limited options left on spectrum for voice and a policy proposal for wireless broadband that ignores the global experience which says that high prices obtained through auctions don't always work.

Some would say why worry if we have high penetration and enough competition because that will make calls cheaper. But a visionary spectrum policy could have led to even cheaper calls at better quality much earlier. All this even at widely-accepted marked-to-market pricing of spectrum. Further, it could have helped to resolve the problem of viability facing broadband.

Hence, to say, as the proposals suggest, that auction is the answer for the remaining spectrum is an oversimplification. This might hold true for voice applications with some caveats, that is, 2 G and 2.5G etc., given that the industry is mature. But this is not applicable to wireless broadband that ushers in internet - 3G, 4G or LTE or WiMAX.

Further, the government still needs to address some key issues on spectrum for voice to sort out the uneven past and optimise available options.

One, it still remains an opportunity to bring back the focus on consumer benefits: Better call quality at still lower charges. Here is a way of realising the telecom minister's wish to bring down the call cost to one-fourth the current rate. For example, we still have the pending charge on telecom companies for excess spectrum allocated. First, there is need to establish the market price for this spectrum by taking up auction in open markets.

Then a mechanism needs to be found to trade this one time charge for lower call charges. Otherwise, auction receipts should go to the Universal Service Obligation Fund to support rural rollouts. This will improve remote area connectivity, increase traffic and the revenue share the government gets.

Two, our telecom licensing policy penalises the subscriber. These licences are for territories called circles. Accordingly, spectrum is allocated circle-wise. This creates artificial inter-circle, local, long distance and roaming charges. This is illogical as all operators already have or aspire to have a national footprint.This requires immediate correction.

Three, mergers and acquisitions (M&As) should be encouraged to enable the industry to consolidate. Industry is reaching a point of market saturation where lower revenue per subscribers and intense competition will hurt its economics.

The government's move to charge a hefty fee for M&As or impose non-transferability conditions on newcomers would bring in distortions, hurt and divert capital from infrastructure. Instead, the official objective should be to help the industry grow by freeing up M&As. Hence, the existing policy of revenue-sharing with the operators is the only way out.

Four, mature players need to reflect whether they have had a myopic approach to the issue of spectrum. What is better for them: Restrictions on M&As or high present values of expensive future acquisitions? They need to support free M&As for new licences. Additional spectrum saves at least 40 per cent of the capital expenditure. M&A activity is what keeps the mature markets going.

Five, a new spectrum policy needs to bring all players to a level playing field to correct a blotted past. Given the high stakes, a high-level commission composed of people of impeccable reputation should be entrusted with this task to correct past anomalies. Even the report of the current expert committee on spectrum should be reviewed by this commission.

Coming to broadband, a visionary spectrum policy can break new ground. Our context of underserved citizens requires information super highways, a largely forgotten phrase. It can bridge the great urban-rural divide, bringing the urban experience of services into the rural environment. Spectrum allocation for broadband riding on revenues from services needs to be worked out.

Hence, spectrum for broadband requires new policy initiative. Even if the government wants to allot 3G spectrum through auction, spectrum for 4G can still be set aside for this purpose and allocated differently to new players.

Finally, to correct the past licensing anomalies, the government needs to come clean on regulations by strengthening and empowering an apex regulatory institution. Can we see our Telecom Regulatory Authority (Trai) as empowered as the US Federal Communication Commission?

Is there any logic for having two bodies: Trai and Telecom Commission? Only an empowered commission immune to any political interference can bring about a level playing field. Such a body can track technology, oversee spectrum trading and penalise spectrum hoarding to further intensify competition.

The author is chairman SA & JVs, MGRM Technologies Inc, US, and advises companies and private funds on strategy.