Don’t kill the golden goose

Frozen policies and decisions have paralysed India’s telecom industry

Written by V Sridhar | Published:May 4, 2012 3:00 am

Frozen policies and decisions have paralysed India’s telecom industry

The recent 2G scam and associated developments are in the process of killing the once-golden goose of India’s liberalisation,telecom.

India’s telecom policies and regulations since liberalisation have been a policy of flip-flops. We started in 1995 with separate auctions for licences for fixed-line telephony and mobile telephony. The bid amounts were well beyond anyone’s imagination. But the winners did not pay beyond the first instalment. In 1999,the government bailed out mobile operators by foregoing the 1995 bid amounts and converting the licence fees into,essentially,a revenue-share. In January 2001,the fixed-line operators were allowed to use limited mobility using Wireless Local Loop (WLL). The limited mobility was then converted to full mobility with the introduction of Unified Access Service Licence (UASL) guidelines in 2003. The obligation for operators to connect villages was removed under the UASL. The UASL was issued for a fixed fee using first-cum-first-serve (FCFS),which led to granting of many licences during 2003-08. The UASL also paved the way for dual technology licensing in 2007,citing a similar policy decision for September 1999 in favour of MTNL. Meanwhile,some operators were quietly given spectrum in excess of 6.2 MHz from 2002 onwards,which had been specified as the maximum in the licence without any upfront payment. On the other hand,after the implementation of UASL,the spectrum-entitlement of CDMA operators was halved under the subscriber-based criterion. The policy flip-flops continued as auctions took place for 3G and broadband wireless access (BWA). The roll-out obligations,which required operators to serve at least 10 per cent of the district headquarters in the first 12 months and 50 per cent of the districts in three years,was now changed — the first roll-out obligation was in five years,enabling someone with financial muscle to just get the spectrum and sit over it without a roll-out,denying the nation broadband services. The most recent policy tangle has been with respect to the 3G roaming pact.

Each of these flip-flops occurred due to intense lobbying by individuals,companies and industry bodies. One can speculate that some were the result of underhand deals. While some decisions benefited the telecom industry,others benefited one company over another,resulting in bitter corporate rivalry and corporations using the media to plant stories. A speculative market,investments at high values,buying and selling of companies and speculative bids in auctions accompanied,or were often caused by,these flip-flops.

However,telecom has served India and the Indian consumer well. Mobiles have reached most villages and most homes today with rock-bottom tariffs; the government gets over 30 per cent of an annual telecom revenue (top-line) of Rs 1,60,000 crore in the form of taxes,revenue-share and spectrum charges. Besides,telecom has large spillover effects in the nations’ economy,in addition to contributing more than 3 per cent of the country’s GDP.

So where is the problem? Some claim that the government could have got much higher revenue for spectrum licences. But much higher revenue from telecom overall was highly unlikely. It is possible that when the market was high,government could have got additional revenue,but it would have balanced out with lesser revenue-accrual at some other time and place. Any attempt to take more out would have resulted in higher tariffs and a consequent fall in subscriber numbers,reducing the total pie.

Then there are claims that there was illegal gratification. That this has taken place often over the last 15 years is highly likely. Speculative markets and intense lobbying are normally accompanied by gratification at different levels. This is a problem that needs attention. The recent Supreme Court 2G judgment,cancelling 122 licences and ordering new auctions within four months,was prompted by one such flip-flop as norms were twisted in 2008. But the court judgment hardly begins to fix policymaking. The court’s pronouncements on policy is just another “blind-man describing the elephant.” It fixes nothing and will only add to the list of flip-flops. Many new issues are likely to emerge in the coming days. A large number of licences will come for renewal,spectrum allotment over 6 MHz may have to be charged,the new 4G spectrum will have to be auctioned. The judgment will only further distort policymaking. The recent 2G scam is much like Bofors,where everyone (the media,the courts,the Comptroller and Auditor General) wants to prosecute the telecom sector.

India has adopted revenue-share (in addition to service tax) as the primary means for revenue-accrual to government from telecom licences and spectrum. FCFS,auctions or any other means are adopted only for entry — to decide who is to be given spectrum. The primary criteria cannot,again,be a solely upfront financial bid. Inclusion of other criterion,such as rural roll-out intentions,tariff structure,and associated complementarities (content,for example) are likely to enable citizens at large to be able to freely use Internet and broadband services without feeling constrained due to prices. It does not benefit the nation if someone just hoards the spectrum or limits the service to a few urban centres where paying capacity is high. One must never forget that unlike developed countries,India has weak wireline infrastructure to provide broadband,and it is wireless spectrum that will bring broadband to its citizens.

India needs to fix its telecom industry. The telecom policy has to be such that it brings broadband at affordable prices to its citizens at the earliest. The industry has to be financially healthy to deploy affordable and quality services. Revenue-accrual and losses to the government cannot be sole factors in policymaking. The revenue from taxes and revenue-sharing will come if the industry is healthy. Technology and markets move at breakneck speed and policy will require continuous adjustments.

One has to define a transparent process of policymaking which minimises discretionary power. Let Parliament,the CAG and the courts pronounce on the process,and not the outcome of the process. Let there be enough independent people involved in policymaking. Let us give enough time to go through the process at each stage. All policymaking and interpretation of policy (when needed) need to go through the process. Let all future entries (allocation of spectrum/ licences) take place using auctions,but with the focus on roll-outs,tariffs and services,rather than on further revenue-accrual for the government. Also,it would serve little purpose to go back and retrospectively probe all decisions.

Let us move forward collectively to “promote (a) knowledge-based society through (the) proliferation of broadband facilities in every part of the country”.

Jhunjhunwala is a professor of electrical engineering at IIT Madras. Sridhar is research fellow at Sasken Communication Technologies. Views are personal

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