Hard Road Ahead – Reforming Telecom

telecom-services

By Chithira Rajeevan

The Indian telecom sector has witnessed immense growth since market liberalisation in the late 1990s. It is the second largest in the world by number of telephone and internet subscribers. However, the industry is grappling with rising NPAs, sky-high debt amounting to ₹4.6 lakh crore and rock-bottom tariffs. The low tariffs along with high data consumption following the entry of Reliance Jio, have severely bled the balance sheets of major players.

Even with increased data consumption, the benefits of internet connectivity have managed to reach only 33 per cent of the population and a measly 16 per cent in rural areas. Bridging this immense divide is critical for big-ticket projects such as Digital India and for furthering our socio-economic goals. The need for increasing access to digital services is apparent from the ICRIER study that found that a 10-per-cent increase in subscriber base would lead to one-percentage-point increase in growth; more developed states would grow at 2.36 percentage points. The spectrum policy needs to be revisited in order to address distress in the telecom sector.

Spectrum Reform

The Department of Telecommunications (DoT) is responsible for the allocation of new licenses and overall spectrum management in the country. Spectrum refers to radio frequencies allocated for telecommunication purposes. The government attempts to manage them through auctions to ensure that the spectrum is not congested and lead to interference between signals.

The auctioning of spectrum was introduced after the failure of the administrative allocation process. This method was expected to increase efficiency as well as maximise revenue collection. However, the extent of real benefits accrued through auctions is debatable.

In an effort to maximise revenue, the minimum reserve prices are set unreasonably high. This puts further financial pressure on the bidding telcos. The unrealistic pricing also leaves large chunks of airwaves without buyers and thus a high opportunity cost of disuse in terms of benefits foregone. The latest auction in 2016 found buyers for only 40 per cent of the spectrum up for auction and raised a fraction of the total value of spectrum on sale.

The amount of licensed spectrum available for use is much lower in India than in developed economies such as the US and Europe. We are also significantly behind other BRICS nations like Brazil and China. Although spectrum availability is a global problem, the scenario is particularly acute in India.

Operators in India possess smaller amounts of spectrum, averaging 12 to 15 MHz, when compared with the global average of 45 to 50 MHz. Government agencies such as the Ministry of Defence are also allotted a sizeable portion of the spectrum frequencies. Of these, large blocks of contiguous spectrum are left unused or underutilised and are unavailable for private players, creating artificial scarcity and keeping the prices for the remaining spectrum high.

Reforms Both Hinder and Enable

Harmonisation of spectrum, making the bands contiguous, would greatly enhance efficiency in spectrum usage. This could be achieved by increasing the allocation of unlicensed spectrum. In this spectrum, users can operate without a license but do not enjoy exclusive use and are subject to interference. These bands could act as a complementary tool to offload traffic from the congested licensed spectrum.

India has great scope for harmonisation. The amount of spectrum de-licensed in the 5 GHz band, for instance, is much lower in India than in other nations. At least 19 countries have de-licensed the 60 GHz band, including Brazil, South Korea, China and South Africa. Expansion of the digital infrastructure to meet increasing demand for data will require adding capacity to existing networks through cost effective initiatives like de-licensing the 60 GHz band, whose natural characteristics mitigate interference.

One of the critical reforms implemented in the telecom sector in India was the right to trade spectrum. Spectrum trading is responsive to the fluctuating needs and utilisation of spectrum over time. This is a welcome move, especially for debt-addled small players looking to exit the industry who can now monetise their greatest asset. This reform would also ease the financial stress in the sector by allowing operators to add bandwidth to their network.

The easing of spectrum holding cap, recently approved by the Telecom Commission, is yet another boost for the wave of consolidation in the sector. The overall spectrum cap per operator in a particular circle will be increased from 25 per cent to 35 per cent. The commission also scrapped the inter-band cap and instead set a cap of 50 per cent on combined sub 1 GHz bands. However, current rules do not allow spectrum leasing. This adversely affects operators who wish to monetise additional or unutilised spectrum. The additional stipulation of adding trade proceeds to the annual gross revenue would hike costs for telcos.

Though prevalent the world over, it was only in 2015 that the Indian government allowed spectrum sharing among operators. This move should have alleviated the stress of operators and helped digital development. Unfortunately, it has proved to be more a hindrance than an incentive. DoT guidelines only permit sharing between operators using the same spectrum band. Such restrictions on inter-band sharing are a retrograde move, as they hinder carrier aggregation – a tool to combine fragmented spectrum across bands and increase network throughput.

The rules also stipulate that sharing administratively allocated spectrum requires payment of a stipulated amount to bring it on a par with auctioned spectrum. There is no incentive for operators to pay this amount, as most of the allocated spectrum is fragmented and unsuitable for new technologies like 4G, 5G etc.

In another half-baked policy reform, the DoT permitted spectrum mortgage, allowing companies to use airwaves as collateral in their fund raising efforts. However, in the case of any default, the government has first rights over the spectrum, not the lender, leaving banks with no protection. An inter-ministerial group report reiterated the TRAI recommendation of giving these rights to banks, making lending more secure. The government seems unlikely to accept this, since it has previously rejected the same.

The Way Ahead      

DoT and TRAI must keep pace with advances in technology. De-licensing certain bands and encouraging efficient usage of the auctioned spectrum through sharing and trading would increase net benefits to society, leading to better spectrum utilisation.

The government must consider alternative technologies and mediums to boost penetration. Broadband services through cable networks could bring last mile connectivity to over 100 million homes in a cost effective and efficient manner, though they also raise issues such as interference due to bad weather and Right of Way implementation at the local levels.

DoT should consider commercial deployment of white space – the unused frequencies between TV stations, which can be used to deliver low-cost broadband internet to rural areas. Companies such as Microsoft have been successfully innovating in this sphere in other countries like the UK, the US, Colombia etc. They must be allowed to experiment and innovate on this unutilised spectrum in India.

While the historic rationale for public management of spectrum may have been well founded, the very nature of application of radio frequencies has significantly changed over time. Radio communication was primarily used for long-range purposes but now its applications have moved into the short-range personal domain. These advancements are changing the way we interact with our surroundings and easing the business processes by enabling devices to seamlessly interconnect. All of these developments are at our doorstep but the policies implemented must also be in tandem with this progress, and that can be achieved only though a more liberalised and technology agnostic environment.

*Chithira Rajeevan is Research Assistant at CPPR. Views expressed by the author is personal and does not represent that of CPPR

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