Developments in Spectrum Sharing

New ways to share spectrum can revolutionise broadband in India

Shyam Ponappa / New Delhi December 3, 2009

As the Telecom Regulatory Authority of India (TRAI) deliberates on spectrum and licensing after the hearings ending December 2, some important points are worth highlighting. Spectrum is public property and, therefore, need not add a layer of cost (through auctions and such other artifices), provided it is available to network builders, and these networks are available to operators for their customers on payment. The question is whether the government should give spectrum free, or for an up-front price, i.e., a hefty spectrum fee, or through a progressive revenue-sharing arrangement as for telecommunications. This can be to network builders for their use, or to operators, to pool through either their own arrangements or through network builders-cum-operators.

One way to think about communications networks is to consider an analogy with road networks. The road network is accessed by paying road taxes and special tolls as required, e.g., when using a toll bridge or highway. The rest of the time, once a transport operator pays road taxes, the fleet’s vehicles have access to the entire public road network.

In the same way, it should be feasible for operators to access communications networks. These networks may be the operator’s own, or the public network, i.e., the Public Switched Telephone Network, paying as they go. In other words, whether operators use their own or others’ networks should be immaterial as long as they pay the tariffs, which result from a mesh of interconnection agreements. In this manner, network builders/service providers can use the spectrum as part of their “plant” for wireless transmission, just as they use optical fibre and copper wire for wire-line transmission.

Networks are already being built and operated by network builders-cum-operators. According to The Economist on developments in network operations, initially in New Zealand and then extended on a much larger and broader scale in India, “The vendors... gain economies of scale because they build, run and support networks for several Indian operators. Ericsson’s Mr Svanberg says his firm can run a network with 25% fewer staff than an operator would need. Bharti’s operating expenses are around 15% lower than they would be if it were to build and run its network itself, and its IT costs are around 30% lower, according to Capgemini.”*

Meanwhile, a momentous experiment in spectrum sharing is taking place in America. A company called Spectrum Bridge has developed a database-driven model for dynamic spectrum allocation in unused spectrum bands, the “white space” in the TV bands. This is in the 200 to 600 MHz band, with considerable advantages in propagation over distances, through foliage and walls, without attenuation as experienced at higher frequencies.

This system is being tried in Claudville, a rural community on the border of Virginia and North Carolina. As is likely to be true in rural India, using open spectrum that is unlicensed is impractical because of the distances, terrain and foliage. Fibre and copper lines are not only impractical, but also prohibitively expensive, a fact that people who suggest the use of existing wiring for broadband don’t seem to realise.

In this context, given the discussions on the possibility of spectrum trading as a solution going forward in the TRAI hearings, it is instructive to note that despite the US Federal Communication Commission’s secondary market initiatives taken in 2003, not much spectrum trading had actually taken place until Spectrum Bridge’s introduction of their tracking and trading model, SpecEx (see www.specex.com). Subscribers view available spectrum at a chosen location and frequency band with pricing details when they want to buy, or list available spectrum to sell by location and frequency band. Therefore, any recommendations by TRAI or decisions by the Empowered Group of Ministers (EGoM) or the government should take this into account in considering the path of market traded spectrum based on exclusively assigned bands. It would be unrealistic to expect such trading to take place simply because it is allowed, without other facilitating developments as have been achieved by Spectrum Bridge in America.

A second problem is that trading in spectrum can result in effects equivalent to land-grabbing in real estate. This serves less for effective communications than as an asset play for profit.

Like SpecEx for priced spectrum, www.ShowMyWhiteSpace.com is a free website that the company supports to show free TV white space (the “digital dividend” that is talked about) that can be used on the basis of open access to unlicensed or open spectrum.

In the trial at Claudville, Spectrum Bridge deployed the network with Dell and Microsoft contributing computer equipment and software to the local school. Teachers can now incorporate distance learning resources into the school’s curriculum.

Our policy-makers need to move beyond debates over slicing and dicing the spectrum to determine the smallest efficient band — 2.5 MHz for CDMA and 4.4 for GSM? Is 6.2 MHz all that any operator needs?... and so on. A direct solution is to not assign spectrum for exclusive use, and instead enable its use as a common resource that must be accessed by everyone who needs to communicate on the network, exactly as public roads are accessed by paying road taxes and tolls. If spectrum must be assigned nominally to operators for administrative reasons, they should be obligated to pool this spectrum for common access.

Once we are able to aggregate spectrum in the frequency range which allows propagation over distances and through natural and man-made obstacles — buildings, foliage, etc. — we will have the open “highways” for broadband for its widespread usage across the country. This can only be achieved at relatively low cost through a progressive revenue-sharing arrangement, which is what happened eventually for voice communications with the National Telecom Policy 1999.

These are complex technical and commercial issues, and require the concerted effort of stakeholders and experts to devise the most effective solution in the public interest. The TRAI hearings are the first step in this process.

shyamponappa@gmail.com

* ‘The mother of invention’, The Economist, September 24, 2009

Managing Spectrum

The Empowered Group of Ministers' goal should be nothing short of a broadband revolution

Shyam Ponappa / New Delhi November 5, 2009

In communications services, the high demand for spectrum compared with limited supply is well established. The Telecom Regulatory Authority of India (TRAI) estimates demand in five years at 580 MHz, with current assignment to commercial operators at about 160 MHz. In this limited amount, fragmented spectrum holdings reduce efficiency, and broadband growth and availability have been abysmal. Therefore, the policy alternatives evaluated should include ways to maximise utility through conserving resources and facilitating broadband Internet. The Empowered Group of Ministers (EGoM) needs this analysis to make informed decisions. The related issue of maximising utility from facilities, i.e., sharing networks for maximum benefit while conserving capital, thereby resulting in lower prices, likewise deserves serious consideration. For this, they need inputs on the benefits and costs of coordinated policy reform to promote broadband through incentives and penalties.

Having said that, it is for the officials providing support to the EGoM to structure, analyse and prioritise issues and provide the requisite information to facilitate informed decisions on complex choices. This requires appropriate inputs on technology as well. Efforts on all these aspects seem inadequate, with the EGoM being simply not adequately informed.

The TRAI recently began a consultation process, addressing a host of issues relating to 3G, Broadband Wireless Access (BWA) and licensing. A major deficiency is that no purposive goals and objectives are indicated, nor is there a facilitating logic to the structuring of issues (57 wide-ranging questions, with roughly three weeks for comments).

This is because the TRAI has posed issues built up over the years in one burst, resulting in the equivalent of a “flash flood”. Instead, structured consultations on discrete sets of questions, as in the indicative example below, are likely to yield better results. However, given where we are — the usual how-far-to-go-in-how-little-time — an organised, logical presentation with relevant inputs would improve the chances of good decisions and outcomes. Here is a suggested road map.

GOALS & OBJECTIVES

The first requirement for the consultation process is clear objectives based on needs. As the TRAI has not provided this, here are indicative constructs:

Our policies for infrastructure should be in the public interest. In communications, these are:

• Ready access anywhere in the country to, a) good services and, b) at reasonable prices.
  
• The services can be thought of as “Broadband Internet” and “Voice and SMS”.

(Note: There are very different objectives for broadcasting, which is outside the scope of these comments.)

DECISION TREES & ISSUE MAPS

A decision tree is an alternative to wading through a welter of unstructured questions, starting with fundamental objectives, using a logical decision map/issue map as a framework. This requires judgment in selecting, organising and prioritising issues. The example at Exhibit A assumes that the least capital and operating costs (while maintaining high quality) are appropriate criteria for services in the public interest.

Exhibit A: Issue Map on Spectrum & Broadband





These decisions will determine how issues of licensing and consolidation/acquisitions pan out. Questions on pricing remain, e.g., percent of revenues for licences and spectrum charges, and the timing of fees (i.e., cash flow from a fiscal perspective). If the decision is to pool spectrum, there are critical questions on Administered Incentive Pricing. The same principles of concessions and incentives (i.e., subsidies) as for sectors like power and highways need to be applied. Finally, there needs to be rationalisation in non-commercial uses, e.g., governance and defence.


SPECTRUM & NETWORK EFFICIENCY=LOWER COSTS

Given our fragmented spectrum holdings, perceived scarcity and economic efficiencies of limited competition in networks, there is reason to explore an approach to conserving spectrum and consolidating facilities. Spectrum can either be given or licensed for exclusive use in bands to separate operators as is done now, or be made available in large (at least 20 MHz) blocks to all operators for common use. Alternatively, operators can be given incentives to pool licensed spectrum to create a common capacity. The same approach can be explored for networks (facilities that use spectrum); these too can be pooled and shared if individually owned. Operators do this in a limited way, e.g., sharing towers, but pooling can be organised and extended much further.

Ill-considered policies that increase competition for its own sake because of the predominance of doctrinaire “free-market” notions have displaced more appropriate market structures. In India, this has resulted in 12-14 operators per service area, compared with the global average of three-five. The economics of networks favour limits to competition, because networks lend themselves to a limited-player (monopolistic or oligopolistic) market.*

Interestingly, an economist at the US Federal Communications Commission has this to say: “…For what should competition be promoted? Promoting competition for particular services can have major implications for the evolution of regulation and the long-term competitive structure of the industry. Unfortunately, the ‘competition for what?’ question has not received adequate consideration.”**

The benefit of using contiguous bands of spectrum is that costs could be significantly lower for equivalent voice and data capacity because of less advanced technology and less density of towers and equipment. Likewise for shared networks. With competition and good regulation, the likely result is lower costs, both for Broadband Internet and for Voice and SMS.

CONCLUSION

An interdisciplinary consultation with stakeholders and specialists is essential to consider spectrum and sharing of facilities. Companies like Ericsson, Nokia, Motorola and Qualcomm as well as Google, Intel and possibly cable companies (Liberty Global?) should be invited. The EGoM’s goal should be nothing short of a broadband revolution. We need this for education and vocational training, health care, governance and economic productivity across the board.

* 'A rational spectrum allocation policy', BS, July 2, 2009: http://organizing-india.blogspot.com/2009/07/rational-spectrum-allocation-policy.html

** http://www.galbithink.org/interconnection.htm
Douglas A Galbi, Senior Economist, US FCC.

shyamponappa@gmail.com

Beyond RTI: The Use of Information

Govt and regulatory focus needs to be on the use of available information for better results

Shyam Ponappa / New Delhi October 1, 2009

The principle of the Right To Information, once established and accepted, opens up a wide range of practical applications. There are, however, many potential areas of information usage for better management for which the data are already there, although perhaps not in an easily accessible form. Some examples are: the supervision of bank loans by the Reserve Bank of India for each sector, eg, housing, commercial real estate, the priority sectors including SMEs, and specific aspects of infrastructure; the acquisition and distribution of electricity; and communications. Consider some aspects of communications where the use of available data could result in better delivery through regulatory intervention.

Two areas relating to information use in communications are (a) spectrum management, and (b) monitoring and administering the Quality of Services, eg, interconnection. Both areas require clarity regarding regulatory powers to enforce compliance and impose penalties before smart applications are feasible, as well as augmenting the powers of the regulator, in this case, the Telecom Regulatory Authority of India (Trai), to supervise usage, ensure compliance, and impose penalties where necessary. However, as described below, the data are already available for hands-on spectrum management. The data on interconnection may be there, although perhaps not yet compiled in an accessible form.

Spectrum Management

Figure 1 is a graphic representation of spectrum allocation and usage in January 2009.

Figure 1: Spectrum Status (MHz) by Circle & Operator, January 2009

This report was compiled by JP Morgan for equity investors, but there are good reasons for regulators to use similar graphics to track status and resource use among operators on a real-time basis. The darkest squares (blue on a colour screen) indicate existing operators who are using their allocated spectrum. The next darkest (green on a colour screen) have been allocated spectrum, but have not begun operations. The next lighter shade (yellow on a colour screen) with a ‘Y’ denotes that licences have been obtained while spectrum allocation is awaited; ‘A’ indicates that licences have been applied for and awaiting both licence and spectrum. The lightest shade (white in colour) indicates no licence and no spectrum. It is evident at a glance from the colour coding that the green squares (second-darkest) indicate possession of spectrum that is not in use, ie, either the legitimate condition of awaiting a network rollout, or the speculative state of ‘spectrum squatters’. This highlights the set that requires hands-on monitoring, facilitating time-bound stipulations for usage, followed up with incentives and penalties. Once such systems are set up online, real-time status reports will be readily available for assessment and action, facilitating regulatory intervention to yield improved service quality for users. There is every reason for such information and graphics to be collated and made available in the public domain. Interconnection The quality of service in communications can fall short of optimal levels for a variety of reasons. In urban areas with heavy traffic, the problems of congestion may be aggravated by a shortage of spectrum, ie, the limited allocation of radio frequency spectrum to operators. But there may be self-induced problems as well, such as inadequate infrastructure, including poor interconnections with other networks. I was recently in an area northwest of Uttarkashi where the only phones that could operate were on the Idea Cellular network. The curious and disabling circumstance was that Airtel and Vodaphone users could not connect with any network. The question is why, given that the Trai’s charter is to ensure that all users of any network should be able to connect to any other network. As far back as 2003, the Trai had ruled that all operators must provide interconnection to Tata Teleservices. In August 2008, the Trai directed GSM operators to provide interconnection facilities to Reliance Communications within seven days. If my understanding is correct, the implication is that users of any network, such as Airtel or Vodafone as in our group, should have been able to connect to the Idea network. Yet, here we were, not able to access the communications network except for subscribers to Idea Cellular. It should be possible for the Trai to monitor Points of Interconnection (POIs) in real-time and track the extent of congestion, instead of doing one-off reports as in November 2005.* Such information, once collated as in the spectrum status report and made available on an ongoing basis, would enable remedial action to ensure that users have convenient access to networks at all locations where any network is accessible. These are indicative examples of how the imaginative presentation of available information can be used to improve delivery. Government agencies and regulators can apply imagination and initiative in designing and applying such tools for effective management and results. * See ‘Study paper on State of Indian Telecom Network’: http://www.trai.gov.in/trai/upload/StudyPapers/5/spaper2nov05.pdf shyamponappa@gmail.com

Making Broadband Happen

There are opportunities to repeat the success of NTP '99 with 3G and Broadband Wireless Access

Let’s take stock of the Empowered Group of Ministers’ reported decisions on spectrum auctions for 3G and Broadband Wireless Access (BWA, aka WiMAX), and see what remains to be done.

To recap briefly:

There will be four bidders for spectrum designated for 3G, making for five operators per circle including MTNL or BSNL. There will be three bidders for spectrum designated for BWA, making for four operators per circle including BSNL/MTNL. The reserve price for a pan-India 3G license will be Rs 3,500 crore for 5 MHz (about $700 million). The reserve price for a pan-India BWA license will be Rs 1,750 crore for 10 MHz (about $350 million). Pre-bid conferences will be held in the next few weeks, leading to auctions in the next three months. Assessment 1. There is one sound aspect to the decisions, while other aspects seem less so. The good one is limiting the operators to five per circle for 3G, and four for BWA. This signals an excellent, forward-looking approach aligned with best practices. A limited number of operators can have contiguous bands of spectrum. This will provide the freedom and incentive to build networks and offer services aggressively. 2. As demand for spectrum exceeds supply, serious bidders may be excluded. The EGoM could remedy this and simultaneously address another problem, the issue of unused spectrum, through establishing policies for resale. Unused spectrum is akin to speculative property investments without development waiting for asset prices to rise before resale, or locked granaries when food supplies are low. As with land at favorable prices for setting up industries, access with development conditions maintained by the actual rule of law with real-time monitoring— no back-door deals, after-the-fact regularisation as with CDMA, or predatory or duplicitous behavior— will probably result in the greatest collective benefits. 3. The EGoM should also explore spectrum-sharing, i.e., non-exclusive spectrum use on common carrier principles. A technically and commercially informed effort for shared usage could lead to optimised use of available spectrum. For this reason, it is important that consultations include companies like Ericsson, Nokia, Motorola and Qualcomm, and Internet service providers. It is also critical that the government's advisors include experienced Radio Frequency Engineers (RF engineers) who understand the capacity and limitations of radio waves, as well as IT and regulatory experts including the TRAI. These considerations are critical for informed decisions, and consultations should not be restricted to economic, financial, legal/regulatory, tax and accounting issues. Because of the potential conflicts of interest, it is advisable that technical expertise should be from outside/or in addition to the DoT/BSNL/MTNL. 4. A third area for consideration is technology neutrality: unrestricted use for services delivered (within amended regulations). In other words, any communications service for voice, data or multimedia to be allowed on any spectrum band, with any equipment (2G, 3G…), using any technology. Removing technology restrictions will permit unconstrained service delivery, resulting in optimal spectrum usage. Currently, e.g., BWA can be used only for data transmission; 3G spectrum is meant for 3G equipment. In fact, different technologies can use the same frequencies. Radio waves can be propagated farther with less power at lower frequencies, resulting in lower costs. One estimate is that 3G at 900 MHz can be built at 60 percent lower cost than in the 2.1 GHz band.* However, there is also the issue of harmonisation: aligning with the way technology evolves globally, so that volumes and experience yield lower costs. Service providers should be able to choose spectrum use depending on markets, technology (present and future), regulation, and commercial logic. Instead of self-imposed restrictions on technology, our policies should seek to optimise usage of spectrum and technology for societal benefits through a network delivering voice, data and video. The present restrictions undermine project economics especially in sparsely-populated areas, whereas an ability to offer all feasible services is both reasonable and commercially compelling, as a basket or bouquet of services offers more to users, and service providers benefit from the efficiencies. Conclusions There are two sets of issues that deserve the EGoM’s consideration: 1. Technology issues, and 2. Pricing and regulatory issues. Technology and restrictions a) Voice over Internet Protocol: Enabling VoIP in line with international practices will benefit users, but will raise issues of protecting BSNL/MTNL's revenues. This needs constructive resolution; however, it should not be at the cost of the public interest in prohibiting VoIP [while beyond the scope of this article, I think that with the right attitudes, leadership, strategies, and alliances, BSNL and MTNL could be effective service providers]. b) Permit any service/equipment with any frequency and technology, in line with amended regulations. Thereby 2G, 3G and BWA (and later, LTE) could be on any frequency. c) Share spectrum usage if possible (common carrier principles, or other arrangements). Pricing & Regulations: Repeat the Success Of NTP ‘99 a) Enable resale of spectrum, including forced resale of unused spectrum, and price caps or claw-backs on speculative gains. b) The EGoM should consider lower reserve prices to maximize service roll-out at reasonable prices. It could be on the lines suggested in December 2008 by the Cellular Operators’ Association of India (see table), or an approach arising out of the consultations, to lower bids so that users get good services at low prices countrywide.

c) TRAI can set appropriate price ceilings, factoring in the lower bids.

d) Set annual spectrum charges with incentives, e.g., reduced revenue share for service delivery on a real-time measure, graded higher for rural areas.

When I first suggested revenue sharing for telecommunications franchises in 1998 to replace license fees from auctions, many dismissed it as unrealistic. However, after NTP ‘99 came through and after a reduction in revenue share percentages, there was an incredible boom in telecommunications services. Simultaneously, the government's revenue share greatly exceeded expectations. The EGoM can recreate this success with wireless broadband.

shyamponappa@gmail.com

* ‘Prospects for UMTS900: status review and outlook’, Catherine Viola: http://www.analysysmason.com/Research/Content/Reports/RDTN0-Prospects-for-UMTS900-Apr2009/

Air India, Infrastructure Policies & Newton's Apple

Our infrastructure policies need a paradigm shift to reflect reality

We need a completely different approach to developing infrastructure. It is not enough to state what we want and allocate funds. For the Old Guard, who see aspirational statements with budgetary allocations as the panacea, to comprehend this requires a true paradigm shift, as with Newton and the apple. A new social paradigm, as it were, so that we learn to set realistic goals, make practicable work plans, then execute them.

This applies to first-order infrastructure, such as energy, transport, and communications, as also to second-order infrastructure that we lack, or where processes need rationalisation, as in selling agricultural produce across the country, or getting aviation fuel at the same price everywhere. These second-order elements are: (a) organised markets — as integrated, end-to-end chains — from input and production, to transportation and storage, to marketing and distribution, including all taxation, and (b) finance, including insurance.

The present crisis in air transportation illustrates the problems with our business-as-usual approach to:

Governance: often feudal, eg, politicians controlling sectors as though they were baronial fiefs, to do with as they like, and
 

Citizenship: either feudal (servile), or overly liberal, or merely argumentative (ie, the spoilers).

This is why governments and stakeholders — all citizens — must strive to work out a radically different approach. This is true for all forms of infrastructure, including the disarray in energy, communications and the railways.

Air Transport As Infrastructure

The skills we must learn and apply are collaboration; realistic goal definition; detailed, practicable activity planning; and high-quality execution, including linkages in overlapping areas or jurisdictions that have to be resolved, so everything dovetails and converges to produce the desired results. For instance, take transport, an aspect of infrastructure that includes civil aviation, and consider one factor: the handling of aviation turbine fuel (ATF). A little reflection should suffice to convince sceptics that airlines are an integral part of transportation infrastructure, and are of strategic importance to the economy. If the central government decides ATF must be available at a uniform price countrywide, the states need to amend sales tax regulations accordingly, so that airlines get the benefit of a standard, reasonable (by international standards) excise rate; if a Goods & Services Tax is introduced, ATF must be covered. This is because airlines must be nurtured as an essential aspect of transportation. Every step has to be seen to completion, and all steps have to be completed. Only then can we expect good results.

Airlines Crisis

To the discerning, it was obvious years ago that the airline sector in India was hurtling towards chaos. An article in 2005* spelt out the inevitable downward spiral of an unrestricted ‘open skies’ approach, well before the global crisis of 2008. By that time, the erstwhile Indian Airlines, deprived of timely funding and all that it implies in terms of management, systems and people, had shrunk from its dominant market position to 38 per cent, while being forced to serve less remunerative routes. Subsequent developments were even more disastrous, namely, Air India’s giving up its bilateral rights in lucrative sectors like the Gulf, the merger with the domestic airline without the attendant benefits of rationalised systems, high personnel costs, plummeting revenues, the overeager rush of private airlines to exploit forced access without the encumbrances that our public sector airlines have to suffer, and finally the petroleum price rise and economic crisis.

We need to approach infrastructure very differently from other capital-intensive, cyclical sectors or industries, because it has significant cost and productivity effects across the economy. This is true for aviation as well, as it facilitates activity and productivity across many sectors. Without its enabling capacity, the rest of the economy is hamstrung. Especially because of the poor state of India’s infrastructure, ignoring this results in disproportional negative effects on other sectors.

Somehow, these fundamental truths remain unaddressed in our quest for solutions for Air India and the airlines sector. The first requirement of policymaking is anchoring in this reality. The second, equally critical requirement is defining goals that are realistic and coherent. Without these two steps, this sector will continue to flounder.

There are those who advocate a totally free market approach instead. They seem unaware that even developed industrial economies with market systems and processes that serve as a platform for the luxury of such beliefs have had to revisit these notions. Developing India can ill-afford the inequitable, discordant, turbulence-creating forces of unbridled individualism, libertarianism or capitalism. India has never had the benefit of appropriate organisation and systems as a democratic, developing nation, but this is something we have to institute, through balanced polices, regulations and institutions. Those who think otherwise need only glance at the economic history of other nations to appreciate how much governments have intervened in building their markets and economies, and how widespread affluence came only after this contributed to a rise in living standards for entire societies.**

Airlines are an integral aspect of our infrastructure, and deserve the strategic thinking and effort that should go into developing all infrastructure. Air India is a part of this sector. This is why attempts to revamp Air India with only a quick financial restructuring plan and inducting corporate leaders without airline expertise into the board appear superficial and pointless (costing Rs 20,000 crore, according to one estimate).

Efforts to build Air India are likely to succeed only after comprehensive restructuring of the airline as well as the sector as a whole. There needs to be a consideration of the long-term possibility of nurturing domestic manufacturing in aviation, as well. Unless airline policies worldwide develop on the lines of shipping conferences supported by Japan, China and Singapore, ongoing turbulence is inevitable. AI needs an alliance to induct expertise in operations; it also needs control over its cost structure. These should be possible with part-ownership by the government, perhaps with even a buyout by employees and management, if feasible.

                                                           shyamponappa@gmail.com

* ‘Competition, Open Skies… and Bust?’, BS August 4, 2005: http://organizing-india.blogspot.com/2008/04/competition-open-skies-and-bust.html

** ‘The Caged Phoenix: Can India Fly?’, Dipankar Gupta, Penguin Books, 2009. See: http://www.civilsocietyonline.com/jun09/jun0913.asp

A Rational Spectrum Allocation Policy

Giving more spectrum to fewer players maximises net benefits

Shyam Ponappa / July 2, 2009

All nations are equally endowed with radio waves, or ‘spectrum’. But some do better than others at using this resource. Currently, by trying to optimise spectrum use measured by communications-traffic-per-unit-of-spectrum, our benefits are suboptimal. India’s misplaced emphasis on this kind of spectrum efficiency results in economic inefficiency. Some basic issues concerning spectrum allocation must be addressed before misdirected considerations of government revenues or fiscal deficits lead to self-inflicted damage from ill-advised auctions. India needs a more rational spectrum allocation policy for better communications, including broadband at reasonable prices. We can learn from the experience of other countries.

Inappropriate goals

Our predicament results from pursuing inappropriate objectives. Imagine building roads to minimise land use without taking into account the objective of carrying capacity or transit time for optimising throughput. While less land may be used, the roads would be narrow, cluttered with bottlenecks, and afflicted with low throughput. What if we sought to maximise net benefits instead, ie, carrying capacity balanced with costs, with well-designed, multi-lane roads, even if more land were required. If our goal were net benefits (however defined, with whatever social and economic attributes), we could maximise these, instead of some other measure that reduces net benefits.

With radio waves, our goal is apparently ‘efficient’ spectrum use measured by the technical yardstick of traffic-per-unit-of-spectrum, and not net benefits. This is analogous to the example of constricted roads, even without the problems of land availability. Because of this, our spectrum usage is not driven by net benefits. So, India has the most ‘efficient’ use of spectrum as measured by traffic-per-unit-of-spectrum, according to a report by consultants to the Spectrum Allocation Committee (SAC), which made its recommendations in May this year [see Figure 1].
Figure 1: Spectral Efficiency

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Source: http://www.plumconsulting.co.uk/pdfs/Plum_Dec08_Spectrum_management_policy_India.pdf*

However, the consultants point out that India is burdened with additional costs, as we need both more equipment and better technology. Further, by restricting spectral carrying capacity, we get less overall utility.

What if we set the right goals?

By setting different goals, eg, efficient capacity resulting in net benefits, we could capitalise on economies of scale and increase net benefits. This implies less fragmented spectrum, with a lower number of operators as in other countries. Less fragmented spectrum also allows a lower number of cells in a given area with more capacity, ie, lower costs. These are compelling reasons for more generous spectrum allocation.

How things are

In India, a communications company gets a small sliver of spectrum depending on its technology, ie, GSM operators get 8.8 MHz, while CDMA operators get 5 MHz. Once these companies get subscribers, the government provides another sliver of spectrum. Further, the amount of spectrum provided for a given level of subscribers has been reduced from one-half to one-fourth between 2006 and 2008. That’s like reducing NH1 to a single lane each way.

India has more operators per circle than anywhere else, higher network costs, and services nowhere near as good. Consequently, operators have to use more equipment inefficiently because of limited spectrum. Second, they need more advanced (ie, expensive) technology to make the most of each unit of spectrum. Third, service quality drops as the density of subscribers saturates the capacity of available spectrum; else, they must invest more to prevent deterioration. How does this compare with the rest of the world?

Other countries have three to five operators (China, Hong Kong, Indonesia, Malaysia, the Netherlands, Pakistan, Singapore, South Korea and the UK), while India has 11 to 12 operators per circle with more expected, going up to 14-16. Spectrum auctions imply more operators and even more intense, inappropriate competition.

How things could be

India’s policy of a large number of operators leads to fragmented spectrum assignment, with lower traffic capacity for a given amount of spectrum (like narrow roads in land use). Limiting the number of operators was found beneficial by Vodafone for the UK as cited by the consultants, as well as by a 2008 study in India.**

The consultants estimate that India’s spectrum usage is eight times more intense than in the UK, Hong Kong or Singapore. Operators in these countries have from 16 MHz to 26 MHz, the latter for the Netherlands, UK, Singapore and Malaysia; Pakistan has 14 MHz. The average spectrum per operator in these countries is nearly 22 MHz with far better services, against India’s average of 5.5 MHz. Advanced technology in India implies significant costs for operators as well as for users, because of more advanced handsets. The consultants suggest that advanced technology be deployed only when it is cost-effective.

Spectrum Allocation Committee Report, May 2009

The SAC has some constructive recommendations, eg, an expert group to rationalise the use of the entire spectrum, a uniform spectrum fee, and fewer operators to avoid fragmentation as in other countries.

Some recommendations, however, are seriously flawed from a net benefits perspective, ie, faster, more ubiquitous services at reasonable costs. One of these is a preoccupation with pricing and spectrum auctions, whose goal — collecting revenues — is in conflict with the goal of net benefits. Another is delinking service licences from spectrum allocation, whereas access to spectrum may be the most effective way to deliver services. Unfortunately, the committee’s charter did not stipulate net benefits and broadband as goals. Therefore, the committee did not address either.

The government needs to act on the SAC’s positive recommendations, while reviewing and addressing the basic purpose of communications, which is presumably for net benefits (‘welfare’) in the public interest.

shyamponappa@gmail.com

* ‘An assessment of spectrum management policy in India’, Plum Consulting, December 2008: David Lewin, Val Jervis, Chris Davis, Ken Pearson.

** Figure 4.1 from the Plum Consulting report above, and Table 5, Optimal Number of Operators in 2010, from ‘Optimal Number of Mobile Service Providers in India: Trade-Off between Efficiency and Competition’, Rohit Prasad & Vardharajan Sridhar, International Journal of Business Data Communications and Networking, Volume 4, Issue 3, 2008: http://dspace.mdi.ac.in/dspace/bitstream/123456789/395/1/Optimal+Number+of+Mobile+Service+Providers+in+India.pdf

Letters: Spectral transparency

Business Standard / New Delhi July 08, 2009

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This refers to Shyam Ponappa’s ‘A rational spectrum allocation policy’ , July 2. The author finds fault with the globally accepted method of measuring spectral efficiency in terms of traffic per unit of spectrum and optimising the use of this scarce resource. A high spectral efficiency does not necessarily mean that the network is congested. Unlike roads, telecom networks are dimensioned to provide a specified ‘Grade of Service’ (GoS). GoS specifies the level of congestion on the air interface. Typically, mobile networks are dimensioned for a GoS of two per cent. The TRAI monitors GoS under the Quality of Service (QoS) regulation. The operator is required to provide enough network resources including spectrum to meet the GoS norms. Therefore, the analogy of congested roads is not quite correct.

Another contention of the author, that the number of operators is ‘limited in the UK’, is not correct either. Although the UK had a duopoly regime in the 1980s, after extensive consultations, the policy was reviewed in 1991 and a policy of open competition was adopted — this means the number of operators over there is only limited by market forces.

Also, for efficient utilisation of spectrum which is a scarce national resource, there is no alternative to a transparent bidding process or auction as recommended by the Spectrum Allocation Committee (SAC).

R R N Prasad
Former Member, TRAI / Telecom Commission

Letters: Spectrum Allocation

Business Standard / New Delhi July 14, 2009

RRN Prasad’s letter to the editor on July 8, on Spectral Transparency, makes various assertions without supporting data.

Prasad asserts: ‘The author finds fault with the globally-accepted method of measuring spectral efficiency’.


a) My objection is to the criterion of efficiency for spectrum allocation, instead of a measure of public welfare/utility/net benefits. We need reasonably-priced services, not efficient spectral use.

b) No other country uses spectral efficiency as the criterion for allocating spectrum.

Prasad asserts: ‘A high spectral efficiency does not necessarily mean that the network is congested... The TRAI monitors GoS under the Quality of Service (QoS) regulation…Therefore, the analogy of congested roads is not quite correct.’

The fact is that there is spectral congestion. The TRAI reports high levels of congestion for January-March, 2009, as in previous periods going back to 2006 at least. Details at: http://www.trai.gov.in/Reports_list_year.asp


Prasad asserts: ‘Another contention of the author, that the number of operators is ‘limited in the UK’, is not correct either… the number of operators over there is only limited by market forces.’

There are four 2G mobile operators in the UK, as stated in my article.


Prasad ends with a non sequitur: ‘…for efficient utilisation of spectrum which is a scarce national resource, there is no alternative to a transparent bidding process or auction as recommended by the Spectrum Allocation Committee…’


The question is, ‘efficient’ use for what purpose? What is the objective? If it is public welfare, technical efficiency in spectrum use is not getting us there.


The initial efforts at telecommunications privatisation began in 1994 in India with a disastrous bidding process. In 2000, the New Telecommunications Policy ’99 replaced auction fees with a revenue-sharing arrangement; only after that did the sector take off. Should our spectrum allocation build on international practice, plus:


a) Take into account our successful telecommunications development experience after NTP ’99, or

b) The disastrous experience of auctions?

Auctions abroad have been generally disastrous in Europe and in America. Besides, in comparing our situation with Europe or America, remember that these are completely different environments, at very different stages of economic development. The default situation there is that most things work; here, it is that few things work.

An Arthur D Little report for the GSM Association begins the section on India as follows:*

‘India presents an extreme example of detailed spectrum management or micro-management by a regulator.’


It goes on to say: ‘The current Indian approach to allocating and attributing spectrum is fraught with risks to the demand-driven development of mobile broadband services, which will likely be delayed and frustrated unless the underlying policies and the processes for resolving the kinds of disputes it provokes are substantially revised.’





* ‘Mobile Broadband, Competition and Spectrum Caps’, Dr Martyn F Roetter, Arthur D Little, January 2009.
http://www.gsmworld.com/documents/Spectrum_Caps_Report_Jan09.pdf


Shyam Ponappa, via email






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Broadband Stimulus

We need good, accessible, inexpensive broadband

Shyam Ponappa / New Delhi June 4, 2009

Does India need a broadband stimulus plan? Yes, because as in other countries, it can be a force-multiplier throughout. Take education: broadband can make centrally deployed content and teaching skills accessible at all levels — schools, undergraduate and postgraduate education, vocational studies, and Continuing Education/adult education. It can help bring about the inclusive growth the government talks of. It facilitates information use by making aggregation, coordination, access/dissemination and management of delivery more effective and efficient.

The potential public benefits extend to healthcare and governance, starting from law-and-order and security, extending to energy management, water and sanitation, tax collection and subsidies, commerce, industry and services, including information, entertainment, logistics, etc. Extensive benefits can be obtained from limited investments. However, policies and regulations can make or break the industry, or even the political economy, because it can take 10 to 20 years to get returns from investing in fibre and wireless network systems. All those enamoured with lower tariffs should apply their minds to (a) what we need, (b) for what purposes, eg, the gamut of education, healthcare, other public services… (c) with the binding constraint of sustainable returns.

A Low-Cost Stimulus!

But here is the amazing thing: if appropriate policies and incentives are devised, as we have seen with India’s telecommunications since the New Telecom Policy, 1999 (NTP ’99), private and state-owned enterprises can build the networks and provide services. The government need not invest directly. Instead, it must provide clarity of objectives, enabling policies and procedures, and institutional support (kept fair and incorruptible), as well as foregone up-front revenues because of tax breaks and other incentives. As with telecom, this can result in explosive growth and increased government revenues.

To see this in perspective, compare America’s investment in its interstate highway system with its broadband stimulus package. The highway system was built over generations; one estimate in 2006 puts it at 35 years and $425 billion. President Obama’s economic stimulus package of $819 billion has a broadband component of just $7.2 billion over two years (under 1 per cent). For a start, America’s Federal Communications Commission (FCC) is required to submit a plan to Congress by February 2010.

Of course, India is very far from having America’s systems and therefore needs to do much more. However, the point is that the US government plans little direct investment in broadband. Second, even with its can-do culture, America is allowing a year for just developing recommendations. Moral: India cannot expect a magical fix in weeks.

Reality and International Benchmarks

Many governments are striving to stimulate growth and productivity through broadband. A study by Oxford’s Saïd Business School and the University of Oviedo last year covered users in 42 countries. Figure 1 shows the ‘Broadband Quality Score’, a composite of user download speeds, upload speeds and latency.

Figure 1: Broadband Quality Scores by Country

Source: http://www.sbs.ox.ac.uk/NR/rdonlyres/EF6BB01E-355B-4F18-9F1B-CA57E20A720A/0/CiscoBroadbandQualityrelease.pdf

India was the tail-ender with a BQS close to 0 on a scale of 100 (the international average is 32), despite our IT skills and knowledge economy aspirations. Another takeaway is that to compete, we need initiatives to prepare for a much higher level of service provision and usage (ie, for an average future BQS of 75 compared with the current average of 32).

How They Did It

In countries like Japan, Sweden and Korea, broadband development resulted from a combination of government policies and incentives, including subsidies for building infrastructure as well as for demand and use, eg, paying schools and hospitals so they would use high-speed services.

Japan used accelerated depreciation, low-cost loans and subsidies for rural networks. Sweden provided tax breaks, rural subsidies, and required state-owned utilities to create backbone networks, reducing costs for local service providers.** Korea and other southeast Asian countries not in this study — Hong Kong, Taiwan, Singapore, Malaysia — have similar government policy support for broadband.

Objectives: Good, Accessible, Inexpensive Services

Our starting point should be clear objectives for broadband services in a realistic time frame. The cornucopia of potential public benefits is enticing. But to reap these benefits, broadband must be (a) ubiquitous, ie, accessible everywhere — or in most places, for a start — and (b) be reasonably priced.

Once these objectives are established, there remain the tasks of planning and execution. The government will need to formulate convergent policies that are coordinated across ministries and states. If it adopts a systematic process of backward induction, developing sound, disaggregated task plans with specific resources, time lines, and responsibilities for delivery and — this is especially important — good quality standards, the objectives may be achieved.

The government will need to avoid getting caught again in specifying technologies, learning from the cellular experience, while focusing on service standards and pricing targets. It must also accept that because of network economics, communications networks cannot support unrestricted competition with forced access. Rather, we must have a restricted number of players, and optimise services and pricing.

Implications for Action

What does India need to do going forward?

• Define appropriate objectives, eg, broadband (at least 2 Mbps) everywhere at reasonable prices.
• Design incentives, eg, a reduction in revenue-share on cellular revenues for incremental broadband service usage (not just service provision) at stipulated levels and locations (geographies). If the government accepts this approach in principle, a consultative process with experts and stakeholders could evolve reasonable incentives that are workable in the public interest.
• Accept the economics of networks and strive for limited competition with good regulation.
• Avoid imposing arbitrary costs such as auctions and up-front fees, whether for spectrum or for network franchises. Go with proven revenue-sharing to achieve service delivery.
• Stay technology-agnostic and specify service levels including quality, and strive for objective regulation for reasonable pricing. For instance, J:Com, a cable service in Japan, apparently can provide 160 Mbps connections in its service area for an incremental cost of $20, possibly the lowest cost worldwide. Similarly, issues such as shared spectrum use, especially of lower frequencies (under 1 GHz), need expert consideration and evaluation.

shyamponappa@gmail.com 

* Also see: ‘Broadband Quality Matters!’, Benoit Felten:  http://www.fiberevolution.com/2008/10/broadband-quality-matters.html  

** For details, see Saul Hansell:

 http://bits.blogs.nytimes.com/2009/04/03/the-cost-to-offer-the-worlds-fastest-broadband-20-per-home/  

RBI: A Call To Action

The public can only wish banks would provide more credit and at lower rates; the RBI, however, can and must ensure that they do.

Shyam Ponappa / New Delhi May 7, 2009

Consider this:

a) In the fourth quarter of 2008-09, interest costs to companies were 41 per cent higher than for the same period in 2007-08. Prime lending rates were between 11.5 and 16.75 per cent, while inflation dropped considerably. This indicates how exorbitant lending rates have been. Corporate net profits were down to 11.7 per cent of revenues for the quarter, compared with 12.7 per cent for the previous year. Imagine what those fourth quarter profits could have been if loan rates were 4 to 5 percentage points lower, ie, at least a third less, with the concomitant effects on demand and revenues.

b) Credit growth slowed from 23 per cent in the third quarter to 17 per cent in the fourth quarter.

c) Small and Medium Enterprises pay interest at an unsustainable rate of 16 per cent. Banks play out this vicious downward spiral by withholding loans, or lending at higher rates to ‘compensate for higher risk’. A totally fallacious rationale: Higher rates do not reduce risk, they increase it; all they do is provide higher compensation for the exposure (ie, they pay more but the risk remains unchanged).

d) The IMF said in April: “Policy rates remain high in real terms in India, and further rate cuts would help bolster credit growth.”*

e) While anecdotal evidence suggests slowing investments, the CMIE reports a steady rise. However, CMIE’s conclusion is based on only two-thirds of investments citing no data available on the rest, so it is possible that fully one-third comprising 40 per cent of projects have been shelved.** This is the opportunity cost — the one-third-empty glass missed out — as is the difference between potential and realised GDP growth (ie, between 5 and 9 per cent).

It’s a simple matter of numbers. Surely the RBI knows this, as also that the proportion of term deposits has been growing in public sector banks, increasing lending costs. The RBI must be aware that reduced cash reserves lower average lending costs, as also of its charter to ensure the availability of credit for economic growth.*** Let’s see if we have it right, spelling it all out:

The Problem

Despite the cuts in the CRR and the apparent excess liquidity evidenced by large bank deposits with the RBI (up to Rs 1,50,000 crore a day at the reverse-repo rate), the problem is that banks continue to be wary of lending. The reasons for this, apart from their being stung by the financial crisis, are that:

Demand has fallen, thereby reducing project/enterprise revenues, and Some costs — particularly the cost of money — are staying high. Therefore, when banks do lend, the interest rates are very high. As a result, demand is constrained, while growth in sales and profits is also declining. The solution: Policy Rate Cuts→Bank Rate Cuts→Higher Demand + Better Project Economics→Higher Production + Profits The logic is as shown in the header. The RBI apparently thinks it has taken adequate policy measures. However, if we accept that India’s growth potential is 8-9 per cent as in recent years (or higher than at present), there should be no doubt about the need for higher growth, and further steps to achieve this. Higher growth also provides more employment. If production and profits grow faster, so does the economy. Sectors like construction, engineering, and services, including travel and leisure services, can provide considerable employment opportunities to capitalise on India’s demographics. (A separate and orthogonal issue is the need for education-and-training initiatives to build the skills of the employment pool, as also to improve work processes and practices. We can only hope this will happen when a government provides direct subsidies to end-users, and the money saved from the PDS and other misguided schemes can be channelled to effective education and training. However, that is unrelated to the pressing need for credit at low interest rates.) For both employment and growth, the RBI must act quickly. There is no use pontificating about poor monetary transmission when the actions taken are inadequate, like the recent 0.25 per cent cuts in the repo and reverse-repo. Talk about reducing India’s policy rate to zero is also irrelevant, diverting attention from the fact that policy rates can be cut significantly and still not be near zero. Banks’ cost of funds: The CRR and savings rate In the last several months, public sector banks experienced a surge in deposits with higher growth in term deposits. This has added to the problem of deposits taken in a higher interest rate environment. Meanwhile, many private banks have lost their cheaper savings deposits. This makes it all the more necessary to cut the CRR further. Why? Because when the CRR is cut, loanable funds increase without any increase in costs. In other words, the average cost of funds is reduced, because the same costs are spread over a larger amount of loanable funds. Banks might still park these additional funds with the RBI or in government bonds, unless constrained to do otherwise by a lower reverse-repo rate and limits on investment. Action is also needed to improve project economics for sound activities by (a) reducing interest costs to enterprises, and (b) increasing their revenues by providing cheaper finance to increase demand. In addition, initiatives are needed — eg, to revive construction — so that stalled projects start moving again. Equally, the RBI needs to devise disincentives to discourage excess investment in government bonds. Finally, the savings rate needs to be lowered in line with lower lending rates. It is necessary for sustained growth and employment to achieve a lower interest rate environment. The gains from a 3 to 4 per cent increase in the GDP would greatly outweigh small depositors’ notional loss from a reduction in interest income. This is why the RBI needs to take immediate action on these issues. shyamponappa@gmail.com * ‘IMF: interest rates remain high in real terms in India’, Reuters, Apr 22, 2009: http://in.reuters.com/article/businessNews/idINIndia-39188420090422 ** BS April 27, 2009: http://www.business-standard.com/india/news/mahesh-vyas-investment-story%5Cs-still-alive/356308/ *** Banking Regulation Act, 1949, includes ‘sound economic growth’ among the RBI’s responsibilities in banking policy: http://www.legalhelpindia.com/bareacts/BANKING%20REGULATION%20ACT%201949.doc