'Model T' - for Telecom

We need an initiative coordinated by the PMO that optimises both services and government revenues

Shyam Ponappa / New Delhi December 2, 2010

The 2G spectrum troubles give India an opportunity for clear thinking and purposive action for a significant impact on people’s lives. We (all stakeholders: operators, central and state governments and agencies, the media, opposition parties, PSUs and private corporations, and citizens) need to recognise that there are two distinct aspects to the wrangle: legacy problems and the way forward. The 2G controversy has to do with the truth and consequences of legacy actions. The way forward concerns our fundamental purpose, i.e. the delivery of effective and efficient communications services. What then must we do?

1. Past problems: Follow due process

Many commentators and sections of the public take a shotgun approach, demanding the cancellation of licences and auctioning confiscated spectrum. This is outside the purview of the law and will destabilise the sector and the economy, as will any arbitrary government action.

In a democratic society, there is a proper way to address these problems: through the due process of law, not summary judgements ending in figurative lynchings. There are contracts with operators, and we have to learn to respect and enforce the law. Use harsh penalties by all means, but only after (a) going through due process in establishing the facts, (b) provided there is evidence of culpable wrongdoing, and (c) the law calls for harsh penalties. If the law calls for a slap on the wrist, we need to change our laws for serious crimes, not resort to mob violence in the guise of righteous outrage.

2. Present and future needs: Approach needs with a sense of purpose

A different aspect of the predicament relates to how we can achieve improved communications infrastructure and services in India. This includes broadband Internet, voice telephony, TV and radio. We need a constructive approach encompassing services, hardware and software, instead of being mired in outmoded practices based on exclusive spectrum allocation, for example. Our focus has to be on our purposes/needs: ubiquitous access at a reasonable price. We need broadband for every household. How do we get it?

Capitalising on the low-margin model

The growth of mobile telephony provides a workable model. The graph below shows the rise in subscriptions with declining prices after the shift to revenue sharing in NTP ’99, together with reductions in revenue share percentages for licence and spectrum fees, and in the access deficit charge.

Source: http://www.ibef.org/download/Telecommunications_171109.pdf

This is a good instance of Henry Ford’s low-margin, high-volume strategy for the Model T. To sustain low tariffs extending to broadband, we need to reduce extraneous levies. A Trai study of 2005 showed government levies on telecommunications in India were far in excess of China, Sri Lanka and Pakistan.*

The study also showed that licence fees from the original auctions would have amounted to Rs 19,314 crore through 2006-07. According to the CAG report, licence and spectrum fees with reduced levies actually amounted to Rs 40,169 crore by 2006-07, i.e. double the auctions; by March 2010, the figure was nearly Rs 80,000 crore.** Over a long period, reduced revenue share for licence and spectrum fees has resulted in explosive growth as well as higher government collections than auctions and high fees


Initiative by ministry or PMO?

Why can’t the communications ministry, the DoT and Trai effect this transformation? Recall the scope of NTP ’99 and the role of the Prime Minister’s Office (PMO) for these reasons:
- First, reduced short-term government revenues. In the long term, the revenue sharing in a vibrant sector far exceeds the auction take, as shown above. Recall that the primary motivation for the licence auctions of the 1990s and the spectrum auctions was collecting government revenues. Hence, the first criterion is the stance of the finance ministry and the government on revenue collection.
- A second criterion at the state level is also financial, for rights of way charges.
- Third is India’s approach to spectrum management. Spectrum use can be structured like road or rail networks, or oil pipelines, instead of being treated as exclusive property or usage rights. The difference in costs and benefits to society is staggering. It’s like the right to use daylight or the air we breathe. Visible light is a part of the same electromagnetic radiation, so if there is a charge for radio frequency spectrum, why not for visible light and/or the atmosphere? Rentiers might see this as an opportunity for revenues, but democracies surely must consider it against the public interest.
- Existing networks of various government undertakings, including PSU operators BSNL and MTNL, PowerGrid, Gail as well as private operators, could be managed as national assets, as described above for spectrum on payment for usage. This need not mean government control and administration, as there could be a consortium with government participation. There are compelling economic reasons for public access to spectrum and networks because of the drastic reductions in investment, with higher asset utilisation, environmental benefits from less redundancy, and reduced radiation from towers, as in one highway network instead of many.

The Opportunity


Even as the law takes its course on wrongdoings, we need a new “New Telecom Policy” on the lines of NTP ’99. This is essential for transformational changes in communications services, clearing up confused policies that are at cross-purposes, and extending to boundary domains in ICT. We should aim for “Model T” pricing with access for everyone. We need an across-the-board initiative to replicate the successful aspects of mobile telephony for broadband and other forms of communication (TV, radio). The PMO could orchestrate a workout with all stakeholders that builds in the benefits of shared network resources, including spectrum, with efficient, low-frequency spectrum for rural communications with much less capital investment.



Shyam (no-space) Ponappa at gmail dot com


Citations updated: June 30, 2019

* Study Paper on “Indicators for Telecom Growth”, Trai, Study Paper 2/2005: 

https://main.trai.gov.in/sites/default/files/ir30june.pdf

** “Performance Audit Report on the Department of Telecommunications, Ministry of Communications and Information Technology”,

https://cag.gov.in/sites/default/files/audit_report_files/Union_Performance_Civil_Allocation_2G_Spectrum_19_2010.pdf

Ideology & ICT Policies

For better policies, decision makers need to know their own and others' biases, and adapt best practices from other countries. Shyam Ponappa / New Delhi November 4, 2010

Why do the same facts regarding people’s needs for ICT infrastructure give rise to different policies? Apart from problematic motivation such as malicious intent and opportunism, even well-intentioned policy-makers may prescribe entirely divergent solutions for a given situation. This is evident if one compares India’s broadband policies with those of most countries. There are at least two reasons for this: differing perceptions of the facts, and differences in underlying beliefs and assumptions, i.e. ideology, as distinct from objective data.

Consider the facts of India’s ICT space. In one sense, there has been spectacular success in the communications sector. One statistic cited as evidence is the phenomenal increase in mobile phone subscriptions (over 12 million in September 2010). Equally, to those who focus on aspects like the shortfall in services outside the big cities and towns, or the meagre broadband coverage and its inaccessibility in rural areas (i.e. in much of the country), the communications sector falls tragically short of its potential, and requires policy change.

In this time of India Rising interrupted by the Great Recession, there is a stark contrast between the orientation of our ICT policies and that of most other countries. One area is the extent of government intervention and spending on broadband development. Governments of most advanced economies have stepped in to dramatically improve their broadband networks and policies for user access. This is not only in the EU where, historically, the approach is that government acts to extend consumer welfare, but also in America, the UK and Australia, which are considered much more free-market-oriented in their approach, and in many countries in Asia, including China. Unlike in America since Reagan, regulatory intervention in Europe is part of more supportive policies at the national and local levels. But this time around, even America has embarked on a comprehensive Broadband Technology Opportunities Program, with the goals of providing access to users in unserved areas, improving access in underserved areas, supporting public interest schemes for broadband access, improving broadband use by public safety agencies, and stimulating demand for broadband, economic growth and jobs; there is also a separate Rural Utilities Service.*

With regard to underlying assumptions and beliefs, an analysis on how economic doctrines affect policies by Robert D Atkinson of the Information Technology and Innovation Foundation offers a way to think through alternatives for better decisions.** His analysis is on ICT, although it can be applied to all sectors. To quote from his conclusion, for advocates and policy-makers, “differences over doctrine cause partisans to view facts differently and to focus on small segments of complex debates, leading to a breakdown of constructive dialog and much ‘talking past each other’.”

He summarises four ideologies or economic doctrines:

Conservative Neoclassical (CNC)

Liberal Neoclassical (LNC)

Neo-Keynesian (NK)

Innovation Economics, also called structuralist-evolutionary, neo-Schumpeterian, or evolutionary economics (IE)

While he describes differences in nuanced detail, the simplified abstractions rendered as a logic tree in the accompanying diagram (below) show how economic beliefs affect network policies.

CNCs are characterised as being less concerned with fairness, and less likely to expect market failures. Therefore, network and broadband markets in which governments do not intervene are considered to be competitive, and require no unbundling or price prescriptions. Their bias is for pure competition.

LNCs are more concerned with fairness, as are NKs and IEs. They accept that telecommunication markets are not competitive, and that there may be market failures. LNCs and NKs would use policy to increase competition in different ways. LNCs expect more competition to lead to increased consumer surpluses. LNCs favour regulated competition, viewing more competition as better. NKs want more competition through directed government subsidies, e.g. for municipal broadband or to small companies (which they consider less rapacious than large corporations).

IEs believe broadband markets have economies of scale, and that increased competition could result in excessive and redundant investments. They consider duplication of existing, expensive infrastructure as inefficient investment. IEs view communications infrastructure as a “general purpose technology” that drives economic activity, innovation and productivity. Therefore, they advocate policies that invest in higher-speed broadband, and in extending network services to more people, favouring a national broadband policy. The US National Broadband Plan defines broadband as a “Transformative General Purpose Technology”, and most countries practise IE. Irrespective of their economic philosophies, most countries have embarked on an aggressive broadband plan.

In comparison, India’s approach does not fit any of these categories. There are no policy incentives for broadband, and actions like the spectrum auctions this year indicate a focus on collecting government revenues rather than on facilitating communication services. Whereas the OECD countries and other Asian economies are working on network resource-sharing schemes, India seems to have previous-generation preoccupations: revenue-collection-for-the-government, increasing competition per se, or abstruse technology considerations, such as loading the most traffic on every unit of commercially available spectrum, instead of maximising the economic benefits from it. Costs and benefits in the public interest are apparently ignored.

BSNL, MTNL and DD have networks that, if they could be channelled with the right mix of policies and private enterprise, could be part of the overall backbone infrastructure for open network operations, as is being done by a consortium in Singapore. If our policy-makers understand their biases as well as those of others, they could adapt beneficial policies from other countries, as demonstrated by many countries with different philosophies converging on improving broadband.

shyamponappa@gmail.com

* “Broadband Stimulus Policy in Europe and the US: A Comparative Review”, Dariusz Adamski, Berkman Center for Internet and Society, Harvard Law School:
http://www.nyls.edu/user_files/1/3/4/30/84/187/245/Adamski,%20SPRING%202009,%2018%20MEDIA%20L.%20&%20POL%E2%80%99Y.pdf
** “Network Policy & Economic Doctrines”, Robert D Atkinson, The Information Technology & Innovation Foundation, October 2010:http://www.itif.org/files/2010-network-policy.pdf

Broadband for Education & Training

Education and training through the Internet need Commonwealth Games-like crisis management

Shyam Ponappa / October 07, 2010

The central government and the Delhi administration have shown they can engage in sheer execution to save face for the Commonwealth Games. Couldn’t our governments choose to make similar efforts to improve an aspect of infrastructure that is perhaps the most powerful means for enhancing our productive capacity and quality of life: broadband? One might ask: why broadband, and not energy, water/sanitation, or roads…? While all infrastructure is essential, broadband gives the quickest, biggest bang for the buck, because of its nature vis-à-vis energy, water or transportation and our regulatory environment and functional organisation (for instance, the complexity of addressing power supply). If we could increase mobile phone coverage to present levels by reducing costs and increasing availability, it should be possible to do so for personal computers (PCs) also, to draw on the wealth of free educational and training material for our vast numbers.

Unfortunately, for such infrastructure, there is no triggering crisis like the threat of failure of the Commonwealth Games, and consequently, no face-saving or glam factors, like the arrival of foreign teams and visitors. This article makes a case for a Commonwealth Games-type crisis management for broadband through a collage of factors.

Consider these aspects of our demographics:*

• Nearly 460 million people are aged between 13 and 35 today.
• Of these, 333 million are literate.
• In 10 years from now, the countrywide average age will be 29, compared to 37 in the US and China, 45 in Europe, and 48 in Japan.
• As many as 100 million Indians — the combined labour forces of Britain, France, Italy, and Spain — are projected to be added to our workforce by 2020, which is 25 per cent of the global workforce.

This indicates our productive potential. Its realisation would require education and training, efficient functioning, i.e. the matrix of enabling infrastructure, and organisation. If these needs remain unmet, the demographic opportunity can become the liability of an unproductive population, with attendant difficulties and social hazards.

We have many formal and informal institutions providing training and education. We add nearly 300,000 engineering graduates every year to our pool of 2 million engineers. India’s vocational training capacity is estimated at 3.1 million a year, whereas about 12.8 million people enter the workforce. However, the National Sample Survey (2004) found that only 2 per cent of the 15-29 age group had formal vocational training and another 8 per cent had non-formal vocational training. In the developed economies, the proportion of skilled workers is 60-80 per cent; Korea has 96 per cent skilled workers.**

Five years ago, McKinsey reported that only a quarter of India’s engineers were employable in the IT industry. Recently, a survey showed this has reduced to 18 per cent.***

Apart from training and education in specific disciplines, the processes that make for good work practices are: systems thinking, a scientific temper, and goal-oriented work practices to meet standards of quality and time. Then there are the attributes of playing team, while engaging in a hard-charging individual effort. All these skills and practices are necessary and can be learned and renewed over time.

How will our workforce of over 500 million, adding 12.8 million every year, have access to continuing education and training, information for civic amenities and facilities and easy, efficient access to commercial and public services? What about the prerequisites of schooling, vocational training and university education? To answer these questions, consider parallel developments in domains such as distance education, e-learning and smart applications. Here are glimpses of the transformation underway in university and secondary education, especially outside India:

• iTunes U has become one of the world’s largest educational catalogues for free educational material. After three years, there are over 300 million downloads. Over 800 universities have their websites at iTunes U, including many of the top universities from the US, UK, France, Germany, the Netherlands, Singapore and so on.
• Khan Academy (http://khanacademy.org), a brilliant, free educational site by an ex-hedge fund analyst and manager, Salman Khan (Salman Khan of Silicon Valley, not Bollywood), covers mathematics, physics, chemistry and biology, with over 18 million page views in August (http://khanacademy.org). Started in late 2006, Khan is reportedly developing an open-ended set of material covering many subjects, and is a favourite among people like Bill Gates, and John and Ann Doerr (Fortune: http://money.cnn.com/2010/08/23/tecnology/sal_khan_academy.fortune/index.htm). Of the 200,000 students who access this site every month, only 20,000 are from India.
• There are many other educational sites from school level upwards, for instance, the Open Courseware Consortium (http://www.ocwconsortium.org) by MIT, with US members like the University of California (Berkeley), Michigan and so on. Many universities and schools have their own websites. There is the Wikiversity, with portals from pre-school through primary to tertiary education, non-formal education and research (see http://en.wikiversity.org/wiki/Wikiversity:Browse).

In India, BCG estimates that Internet usage will increase from 7 per cent of the population in 2009 to 19 per cent in 2015 (237 million). PC penetration, which was just 4 per cent in 2009, is estimated at 17 per cent by 2015 (216 million). To quote BCG: “India has among the highest PC costs and lowest PC availability of all the BRICI countries (including Indonesia).” Mobile phone penetration, however, is 10 times higher, at 41 per cent. This appalling situation needs to be redressed.

Inferences

Hundreds of millions of Indians should use these websites and the Internet for radical transformation. This will require policies and practices aimed at providing:

• inexpensive access to broadband;
• greater access to PCs and PC-equivalents as they evolve (e.g. Pranav Mistry’s SixthSense); and
• systems and processes that encourage distance education, and discipline in all fields, with professionalism and excellence across all activities.

Regulations and tax regimes determine which activities are profitable, and to what extent. This is where the government and its policies come in. Could Internet users in India converge public opinion to rouse governments to address these needs, emulating the example of Delhi Chief Minister Sheila Dikshit?

shyamponappa@gmail.com

* http://indiatoday.intoday.in/site/Story/114002/India/aroon-puries-welcome-address-at-youth-summit.html

** Employment Report, Ministry of Labour, July 1, 2010: http://labour.nic.in/Report_to_People.pdf

*** http://www.business-standard.com/india/news/engg-college-students-not-industry-ready-survey/388620/

What a Highway Can Do

Despite signs of transformational change, we need more - SOPs and quality

Shyam Ponappa / September 02, 2010

Even as the country reels from the extended rains and the imminent Commonwealth Games, there are unmistakable signs in Delhi’s environs of an unprecedented transformation. To see and feel this, try driving to the Delhi-Noida toll bridge (the “DND”), and go past Noida on the expressway to Greater Noida.

It isn’t perfect, and there are many details that could be handled better, from the assets built to how we use them. These include unfinished verges with construction debris near the Ashram crossing, cambers without proper drainage that get flooded in some stretches of the expressway, motorcyclists sheltering from the rain under the flyovers/overpasses spilling on to the expressway, pedestrians with no place to cross, trucks at night without even reflectors, trucks that are parked without hazard lights, tractors, and occasional cattle. Most dangerous are the undisciplined drivers who act as if they are puttering along at 30 km per hour while going at the 100 km speed limit or more, or who drive on the wrong side against oncoming traffic. And the resurfacing of the road in parts leaves much to be desired…

The transformation under way

Ignore this cavilling and carping, however, and it is bliss. One can cover 30 km from the DND toll plaza to Greater Noida in 20 minutes legally, although within New Delhi, it may take as long or even longer to travel just a few kilometres. I was amazed recently driving from Shantiniketan to Greater Noida in 40 minutes. It was like driving in California — quite different from the contentious driving that is customary on our roads.

The sheer ease and convenience apart, another, arguably greater, benefit is the gain in productivity. It is this potential for productivity that, if we can wring from ourselves, is one part of the equation in our pursuit of an improved quality of life. It is especially important because of our vast numbers, including the much-bruited potential demographic dividend, which is not new. As Babur put it in the 16th century*: “…if they fix their eyes on a place in which to settle …as the population of Hindustan is unlimited, it swarms in.” Little has changed, and much needs to be built from the ground up, starting with sanitation and water, not to mention energy, communications, and transportation systems.

But just consider: the limited instance of the drive on the expressway reveals a productivity gain of three to four times at 20 minutes for covering 30 km, compared with covering only 7-10 km in the same time (or taking three to four times longer for 30 km). That’s a gain of 300-400 per cent!

There’s another noticeable change: a willingness of everyone to work very much harder at whatever they do. All levels of people, from entrepreneur-managers to electricians, plumbers, gardeners, and day labourers, work so hard that a major change seems to be afoot. I am familiar with the hardworking farmer and rural wage earner, having grown up on a farm myself. I have also experienced the recalcitrance of some public sector employees and private sector unions, as well as the productive, hard-charging PSU, government, and private sector employees. Yet, in the work attitudes of boomtown Greater Noida, I see impressive energy and application.

The failings

Let me not gloss over the weaknesses. There are big failures in delivery capability, and these arise from two critical lacunae:

a) SOPs, systems and procedures
A major failing appears to be the lack of Standard Operating Procedures (SOPs) even for simple construction jobs, like painting metal: the ramrod, sequential steps of first scrape, then clean, apply primer, apply the first coat of paint and dry off; then apply the second coat… People simply don’t follow sound work practices — systems and procedures that, when applied, yield consistent good results. This is partly an endogenous failing, arising from lack of appropriate education/training and discipline. It is also partly attributable to the lack of organised systems and procedures.

b) Infrastructure
An equally critical exogenous failing of the environment is reliable infrastructure, whether in the form of energy (power/electricity), communications, transportation excepting a one-off good stretch of highway, or water and sanitation. Take any single area, say energy. The extent of wasted manpower because of lack of adequate electricity supply is beyond imagination.

Add the bases for learning and functioning competently, and there’s education (including training) and health care as a support function. Proper education and training — and discipline — are absolutely essential for learning and developing sound work processes, and for applying them. There was an impression many years ago that incompetence or recalcitrance in delivery resulted from the inadequate capacity of individuals. In the last several years, it is evident that we have good people, but they have very poor training, systems and organisation, and equally poor infrastructure. You could call it a lack of leadership and discipline at all levels.

What we need

We need two sets of fixes. The first is for our inherent failings: the lack of SOPs and the need to learn to work to inexorable checklists and timelines. It is imperative to learn the discipline of project management at all levels — starting from the top, not the bottom! This is a sweeping change that entails shifting from feudal criteria to respect for professional competence and processes.

The second fix required is a supportive environment: good infrastructure and the appurtenances of good policies. Going by the figures, we will build more roads, power plants and factories in the next few years than in the last 60. But the net gain to society will depend on their quality. If they are shoddy, the gains will be much less. Assets that are not integrated into coherent systems will be less beneficial than if they are integrated to deliver results, e.g. isolated housing without a web of transportation and communication links near where people work; isolated good stretches of highway. It is imperative that we design and execute the infrastructure to support our productivity. This is an area of weakness we must address and execute more comprehensively.

shyamponappa@gmail.com

*Babur-Nama, translated by Annette Susannah Beveridge http://www.farlang.com/diamonds/beveridge-baburnama/page_546

China 2: Beneficial Engagement

India and China have the opportunity to develop strategic commercial interests that are mutually beneficial

Shyam Ponappa / New Delhi August 05, 2010

The opportunities and threats relating to China are an unending source of discussion and debate. How do we move beyond, to grasp the nettle of practical considerations and undertakings? What emerges is India’s need to strategise its commercial interests and execute projects in terms of clear objectives. One aspect is related to internal coordination: getting our act together, e.g., in domestic manufacturing. A second aspect has to do with external orientation, and engaging with China.
In a previous article*, I had suggested the need to orchestrate supportive policies for domestic manufacturing, to capitalise on India’s growth. The central idea: emulate China’s approach in areas where it has successfully established policies that yield scale economies with appropriate financial and commercial linkages, to result in high-quality products delivered at low cost. An instance discussed was the power sector, where China has coordinated its state and central taxes, picked favoured locations which have good infrastructure (energy, transport, communications…), subsidised land, managed favourable exchange and interest rates (i.e., cheap finance), given preferred access to its domestic markets, and deployed barriers to unfair competition, like import tariffs not below the WTO floor.

Another dimension that also needs to be explored is positive, constructive engagement with Chinese enterprises. The potential for engaging in a number of areas with the scope for mutually beneficial participation may exist. This kind of collaboration could mitigate risk by enhancing access to raw materials as well as to expanded markets for finished goods, while reducing capital investment through equity participation.

Take sectors like energy and metals. Both provide tremendous opportunities for mutual benefit. One dimension is joint bidding for projects for exploration and development in sectors such as oil and gas, instead of competing bids. (The Sudan venture doesn’t count, because India and China became partners by default, and not by conscious choice.) Another is joint participation in projects in both countries, e.g., for aluminium. China itself is guarded about FDI in strategic sectors, so such ventures will require significant efforts and accommodation from both countries.
Although more opportune several years ago, it is still possible that there is scope for an aluminium smelting joint venture in India because of the availability of bauxite, coupled with back-to-back joint ventures in India and China for finished products. The potential benefits to Indian companies such as Nalco are access to substantial capital for expansion, as well as increased access to markets. A Chinese partner like Chinalco would also gain significantly by access to its share of low-cost raw materials as well as to a more diversified market, in return providing access to Chinese and international markets to its Indian partner.

China has for years acted decisively on setting up joint ventures in its overall interests. In the early 1990s, I saw a phosphoric acid plant in Florida, where China had a 50-50 joint venture with a US company, Seminole Fertiliser Corporation. This enabled Chinese phosphoric acid imports at favourable prices, circumventing cartelised export restrictions by US producers. (China and India have been and are major importers of phosphoric acid for phosphatic fertilisers.)

More recently, Huawei’s efforts in breaking into the US telecommunications market show the same decisiveness, e.g., in hiring the former chief technologist of BT for its operations in the US. Huawei has been a leading supplier to BT. This is an instance of how China strategises its approach to be an acceptable partner.

While breakthroughs in information and communications technology (ICT) with India may be more difficult in the near term, because of mutual wariness as well as the need for complex structuring, mainstream ventures in sectors like steel, aluminium, copper and energy (oil and gas, coal) may be more easily structured and executed, provided there is mutual (a) reciprocity and (b) transparency. In this, our decision-making and delivery processes must keep up with the required pace. This major change in approach between the two countries, open reciprocity with no game-playing, and in India’s own methods, are necessary conditions for major commercial developments that lead to optimal economic engagement.

One difficult aspect is the inevitability of dealing with China’s state agencies for core projects, often affiliated with the PLA. However, it is a reality that has to be included in the final solution, just as major energy ventures that India participates in are likely to be driven by state-owned enterprises like ONGC, Indian Oil Corporation, or GAIL.

A possible way to achieve a first step may be to structure a venture that is in a third country, with substantive contributions from both India and China, with benefits to all three. An example could have been (could be?) a very large copper and gold mining project in Mongolia, close to the Chinese border. The Oyu Tolgoi (“Turquoise Mountain”) project is currently being developed by Ivanhoe Mines, a Canadian company, and Rio Tinto, the mining giant in which Chinalco is the largest shareholder, with the Mongolian government as the third partner (for details, see http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=107827&sn=Detail, and http://www.ft.com/cms/s/0/ b2065990-8ddf-11df-9153-00144feab49a.html ). The two external shareholders reportedly have differences about Rio Tinto’s enhanced acquisition of Ivanhoe and thereby of Oyu Tolgoi. A possible solution, provided India perceives this as beneficial (as must Mongolia, Ivanhoe and Rio Tinto) and Delhi acts decisively, may be the induction of Indian equity into this project.

This can only happen if there is a national initiative to evaluate and act on the opportunity, with a concerted bid in a manner that all parties — the Mongolian government, Ivanhoe Mines, Rio Tinto, and the Indian government — can have a meeting of minds on valuation and direction, with an open, collaborative approach.
Other potential areas for participative ventures could include logistics and transportation, including airlines and freight/shipping. While the possibilities are open-ended, the actual unfolding of promising pathways may require success with simpler “asset-plays” like metals or energy projects, to establish what is pragmatic and feasible. These could provide substance to what is currently just talk of a strategic partnership with China.

shyamponappa@gmail.com

*http://organizing-india.blogspot.com/2010/05/china-club-instead-of-bombay-club.html

Catching Up On Broadband

The govt can invest some of the Rs 1,00,000 crore from the spectrum auctions to help India catch up on broadband

Shyam Ponappa /  July 1, 2010

When it comes to broadband, India is “notably lagging its peers”, to quote Booz & Co, an international consulting firm.* Its report recounts our pathetic coverage — less than half the anticipated 20 million — and recommends that both industry and government must act in concert. Spelling out the roles for both, it concludes that we need a national policy to improve fixed-line infrastructure more rapidly than the current market-based approach does, as well as satellite-based communications.

The report recommends this because advanced economies have broadband on widespread fixed-line networks, and many are pursuing strategies to further empower their citizens through state action, as before. The effects are many, but let’s start with examining costs.  Figure 1 shows the relative cost of broadband in a sample of countries.

Figure 1: Broadband Cost PPP US $

India seems favourably placed with its low purchasing power parity (PPP) cost. However, relative to costs in India, this is about 6 per cent of average monthly gross national income (GNI) per capita, ranked 78th, as shown in Figure 2.  In comparison, the first 23 countries — Macao, Israel, Hong Kong, the US, Singapore, etc., Greece and Spain included — have costs below or close to 1 per cent; the next 16 have costs below 2 per cent. As the 39 countries have PPP costs of only 0.25 per cent to twice India’s cost, India’s cost as a percentage of its GNI is six times theirs, i.e. Indian users have to pay relatively more. Increasing GNI, while desirable, is harder, more complex, and will take much longer. By contrast, costs can be reduced quickly by sharing network resources and limiting government collections to a reasonable percentage of revenues, instead of auctions and arbitrary levies.

Figure 2: Fixed Broadband Cost As % GNI Per Capita 

Source: http://www.itu.int/ITU-D/ict/publications/idi/2010/Material/MIS_2010_without%20annex%204-e.pdf

Broadband leaders

Wired Asian countries like Japan, Hong Kong and South Korea already offer broadband on the next generation of high-speed networks. Singapore’s approach especially should be of interest to India, with policies supporting a blend of public subsidies and private investment, while separating three activities: infrastructure, network operations (wholesale), and user services (retail)**

Two years ago, Singapore set out to create an environment with more open access to downstream operators by separating the building of infrastructure from the running of the network. It drew on the experience of local community networks in countries like Britain, France, the Netherlands and Sweden. Three Singapore companies partnered with Axia Netmedia, a Canadian broadband company, to form a consortium called OpenNet, the infrastructure operator. OpenNet uses one partner’s existing network (SingTel’s) as a base. With a government grant of 750 million Singapore dollars, OpenNet is building an extensive fibre-to-the-home (FTTH) grid to be completed by 2012. The second partner is a subsidiary of Singapore Power, SP Telecommunications, which leverages Singapore Power’s experience in developing infrastructure. The third, Singapore Press Holdings, is a leading media services company.

The network operator, a subsidiary of StarHub (a cable and phone operator), is Nucleus Connect. Residential services at 100 mbps have been announced, to be provided by over 10 retail service operators. While some analysts opine that increased competition may not lead to appreciable cost reduction, Singapore is already ranked fifth-lowest in cost as a percentage of average monthly GNI per capita.

Can India do some catching up?

a) Can India do something similar? Don’t we need to? How?

The answer to the first question is: only if the government decides on a concerted drive.

To the second: yes, to be competitive.

To the third: with a comprehensive, integrated systems approach. It is insufficient if only one or a few ministries and agencies are involved, because the development and execution of solutions require cutting across turf boundaries. The conventional approach of the ongoing Trai consultation followed by recommendations addressed by the DoT is simply inadequate, because their charter is too limited. Many issues concerning commercial and user decisions, particularly of government agencies and the Department of Defence, and radical changes in approach need active participation from these players as well as the private sector for resolution. Examples are Booz & Co’s recommendations of a better fixed-wire network, and satellite communications in the Ka band, or the possibility of exploiting the cable and satellite TV network of around 110 million households. The entire communications network, or at least the backbone, needs to be shared for efficiency, unlike the existing limited tower-sharing. Also, state governments need to be closely involved in issues like Rights of Way and user needs.

b) Governments at the Centre and all states need to facilitate the productivity of their citizens, instead of hamstringing them with taxes, levies, auctions and dysfunctional policies. This is more easily said than done, with our predatory history, fractious coalitions at the Centre and states, and freewheeling, combative state governments. Governments at all levels have to coordinate this problem-solving initiative for all stakeholders, adapting the experience of leading broadband countries, instead of predatory behaviour seeking personal gains. The consultative process needs to agree on goals, and then figure out practical ways to achieve them.

c) With inspired leadership and a constructive approach, half of the over Rs 1,00,000 crore from the 3G and BWA auctions could support a broadband gambit drawing on concepts like Singapore’s public-private partnership, instead of being just a damaging revenue-collection exercise. Again, easier said than done, but with result-oriented, strong leadership to elicit enlightened employee engagement, even MTNL and BSNL could be partners in a core network in a role like SingTel’s. A public-private network-builder can draw on the combined strengths of its participants to provide a platform for a number of private operators. Separating the infrastructure building and operations from wholesale network services and end-user services could make this feasible and practicable.

shyamponappa@gmail.com

* “Bringing mass broadband to India: Roles for government and industry”, Booz & Co, June 7, 2010: http://www.booz.com/media/uploads/Bringing_Mass_Boadband_To_India.pdf

** “Singapore gets wired for speed”, Sonia Kolesnikov-Jessop, NYT: http://www.nytimes.com/2010/06/15/technology/15iht-rtechbroad.html?ref=internet

India's Sorry Spectrum Story

How not to do ICT for development

Shyam Ponappa /  June 3, 2010

The network of roads is mostly public property. What if the government decided to make more money from our use of this property? Made users pay for these public assets, whether the roads are there, or yet to be built? Demanded up-front fees for a fixed-term right, followed by annual fees marked-to-market to reflect “fair market value”...

All roads would be expensive, and few people would be able to afford their use. Imagine what it would do to plans to build new roads. Imagine how much you would have to pay for road use, how usage would drop, the sheer inconvenience, and the impediments to productivity.

This is not happening to the majority of our roads, but it is to communications, especially broadband. With some differences, this is what spectrum fees are about. The major difference is that spectrum fees are levied on operators, not end users (the equivalent for roads would be fees from government agencies/road operators).

For instance, Bharti and Vodafone paid Rs 12,300 crore and Rs 11,600 crore respectively up front for 3G spectrum. This is one reason why India won’t get widespread broadband networks in a hurry, nor reasonably priced services. The investment in spectrum fees and networks is so high that operators will probably offer limited, high-margin products. They will focus on high-traffic routes and ignore the rest, serving 50-100 million, instead of a billion: exactly the opposite of what we need.

The spectrum story

This approach to spectrum management is an object lesson in how not to use information and communications technology (ICT) for development. Each operator is assigned a sliver of spectrum exclusively . The resulting “scarce spectrum” predicament demonstrates why this approach is entirely unsuitable for optimising net benefits. Optimisation requires making trade-offs between technology, economics and commercial interests for development and the common good.

The situation is aggravated by three additional factors:

• Too many operators in a franchise area (12-16 in India, as against an international average of three to five), resulting in limited capacity and high capital costs.
  
  
• Limited availability of spectrum for commercial use, because of the extent assigned to the government, defence and the public sector.
  
  
• The government’s periodic efforts to extract as much revenue as possible from spectrum: an exploitative approach, instead of nurturing capacity to generate fair tax returns over the long term. Even in advanced economies, high auction bids have been disastrous.

Consequences 

• The average spectrum available per user is of the order of 5.5 MHz in India, compared to an international average of about 22 MHz.

Delhi and Mumbai have cell sites that are less than 100 metres apart, compared with around 200 metres in Istanbul, 300 metres in Munich, and 350 metres in Berlin. Decreased inter-cell distances increase interference, thus restricting capacity. If each operator has more spectrum, traffic-handling capacity increases at a lower cost. Improving technical efficiency at the cost of economic efficiency loses out on capacity at low cost. Cellular operators in India are forced to extract greater spectrum efficiency (see Figure 1), which sounds good until you factor in the increased costs and opportunity losses.

Figure 1: Spectrum Efficiency in Delhi & Mumbai compared with London, Singapore & Hong Kong

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

http://www.plumconsulting.co.uk/pdfs/GSMA%20spectrum%20management%20policy%20in%20India.pdf

The report from which Figure 1 is taken estimates that spectrum assignments increased to international norms would have lowered industry costs by 21 per cent (Rs 11,700 crore or $2.6 billion in 2008). This would have resulted in more extensive coverage at less cost, with greater consumer welfare.

• The result is high-cost infrastructure for operators as well as for users. Too many operators make for increased capital costs for each operator, and cumulatively for all operators — unless they use common networks. Higher efficiency requires more base stations and more advanced technology, both adding to costs. Despite this, operators are exhorted to improve their spectrum efficiency. After a detailed assessment, the report concludes:

" • The claims regarding the scale of the capacity increases possible with the use of various techniques are significantly overstated.

• In the case of adaptive multi-rate (AMR) codecs, this technique is already being deployed on a widespread basis.

• The claims wrongly assume that the capacity gains from the different techniques are additive. This is simply not true in a number of cases. For example, the gain achievable with DFCA is less if AMR has already been implemented.

• There are substantial costs associated with deploying advanced techniques — both for operators in terms of network upgrades and for end users in terms of new handsets.

• It is important to be aware that deployment of some of the techniques, such as AMR HR, leads to lower quality of service.

• The focus on spectrum optimisation techniques for 2G networks fails to take into account the fact that the efforts of the suppliers have now shifted from 2G optimisation to 3G deployment.

Those making these claims seek more intensive deployment of advanced techniques to maximise technical spectrum efficiency. But a better policy objective, as we argue (in a later section), is overall economic efficiency. From this perspective, it only makes sense to deploy advanced technologies when this is a lower cost way of increasing capacity than adding further base stations. Indeed it is against the interest of the Indian economy to deploy them if this is not the case."

The approach is counterproductive and against our interests. Advanced economies are doing the opposite, encouraging investment in broadband to improve productivity, while India’s policies actually constrain productivity.

• A third consequence is the non-availability of spectrum in the more efficient bands, eg, 700-900 MHz. This has a negative effect on last-mile roll-out and services in rural areas. Lack of coverage in the hinterland is a severe deficiency in areas that are poorly served by fixed-line networks. It only perpetuates the vicious circle of low potential in rural areas with deficient broadband and Internet access.

The curse of spectrum auctions

Two recent developments have created additional burdens. One is the 3G auction, with bids of over Rs 67,000 crore (almost $15 billion). Another is the TRAI (Telecom Regulatory Authority of India) recommendation that 2G operators with over 6.2 MHz must pay for additional spectrum at prices determined by the 3G auction, resulting in a precipitous fall in the shares of major operators (ee Figure 2).

Figure 2: Telecom Stocks After TRAI's Fees Recommended For 2G 

Why should governments be concerned when stock prices fall? For the same reasons they should want stable markets: investment and prosperity, leading to public welfare. It makes little sense to entice investment into high-potential, sunrise sectors, only to batter successful enterprises with arbitrary “taxes”. Bharti described the changes as “shocking, arbitrary and retrograde”; Vodafone called them “opaque, illogical and discriminatory”.

Like an absurd play, events have taken a surreal turn, with the Department of Telecommunications reportedly demanding spectrum fees from the Defence Department. However, no additional demands were made on companies cashing in on assigned spectrum rights that sold for windfall gains without any networks or users. This seems equally absurd.

The government needs to give up making short-term revenue killings, and instead, maximise net welfare through building productive capacity. Ubiquitous broadband is good for productivity and for the environment. As for auctions, remember that collections from revenue sharing after the New Telecom Policy 1999 (NTP ’99) far exceed the bids. Let us have the wisdom to collect those golden eggs over time, instead of eating the goose now.

                                                                       shyamponappa@gmail.com

China Club instead of Bombay Club?

Emulate China's coordinated policies for strategic sectors, and we'll rely less on commodity exports

Shyam Ponappa / New Delhi May 6, 2010

With the momentum of the past few years, India’s potential for growth is enormous, despite the chaotic loose linkages. In sectors like power and telecommunications, this translates to demand far outstripping capacity. Some contend that domestic inability to build capacity — i.e., being able to actually pull it off, as against the perpetual potential — will conscribe not only these sectors, but also limit overall growth. So the argument goes, e.g., let China build India’s power plants, because we need the power and don’t have capacity/they do it cheaper.

Comparative advantage notwithstanding, this reasoning is fallacious given the realities of national interests and self-interest. To understand why, consider the naïveté of the underlying assumptions — about “rational man”, that capitalism is fair, capital is immobile, surplus value accrues to countries and not to companies, or that the pursuit of self-interest maximises societal benefits.*

Our quandary is aggravated by our inability so far to orchestrate supportive policies for even a level playing field. Ironically, one need only consider India’s approach to IT and IT-enabled services (ITeS) in the initial growth years to realise this. India’s policies in IT and ITeS, while far from perfect — in fact, sneaked through by stealth, as in the preferential 64 kbps communications lifeline, and the tax breaks for software service exporters — provided the foundations for transforming IT and then ITeS/BPO/KPO (Business Process and Knowledge Process Outsourcing).

These sectors also benefited from a controlled exchange rate, as the Reserve Bank of India (RBI) managed a steady depreciation during those years. But they did not have another vital ingredient of coordinated policies as did the Asian tigers: low borrowing rates (see diagram below for real interest rates in China, USA and India, 2002-2004).

http://thinkglobal.com.au/docs/ChinaMembers/China_and_Indias_Financial_Systems_-_a_barrier_to_growth.pdf

This is one reason why, for instance, India’s machine tool manufacturers or shipbuilders have not matched the growth of knowledge-based services. The former need inexpensive, long-term capital for production and marketing, as well as for continuous innovation, upgrade and scale.**

Why labour arbitrage and not products

This is also one reason why we lack product orientation, because product design, development and marketing require the support of easy access to cheap capital for a long period. Labour arbitrage needs little capital. Therefore, we have been better mercenaries than producers of products, compared with the chaebols (Samsung, Hyundai) or keiretsu (Mitsubishi, Dai-Ichi/Mizuho). There are, of course, many additional reasons: their education, training, work practices, our policies against large corporations, etc.

With growth in domestic markets across a broad range — telecom equipment, engineering goods, power — there are domestic manufacturing initiatives, such as L&T and Bharat Forge in power generation joining Bhel, or Tejas Networks in optical switching. But for the transformational changes we have witnessed in IT, we need coordinated industrial policies that support domestic manufacturing, because that’s the competition. Unthinking acceptance of “open markets” without heed to how others — including developed economies — cosseted and built their manufacturing capacity will ensure that India stays a raw materials and commodities exporter, while importing trains, aircraft, machine tools, and equipment for power generation, telecommunications and defence.

Integrated policies work

Ideally, supportive policies comprise a coordinated range, such as state and central taxes, favoured locations with good infrastructure — energy, transport and communications, subsidised land, favourable exchange and interest rates, preferred access to domestic markets, and barriers to unfair competition, like import tariffs not below the WTO floor, and safeguard duties. Without this orchestration, the victors are companies and countries that have understood these principles, and have these systems in place. (This applies equally to farm products.)

Many are apprehensive that what works elsewhere will not work in India because of malpractices, as seen in recurring scams. There is every need for systems with integrity, and for enforcement with penalties. But just as corruption in government or civil society does not do away with the need for either, misuse does not negate the need for incentives. It would be self-damaging to lose the opportunity to try and get our act together simply because of apprehensions of corruption and/or incompetence. That would be like not subsidising food for the poor; it’s a different matter that we need better methods to prevent gross misappropriation.

The consequence of heedless, ad hoc muddling through instead of orchestrated strategies is that manufactured imports will dominate our markets, while domestic manufacturing is fragmented, hamstrung or absent. Having said that, consider India’s needs in electricity or communications — telecom, Internet and broadcasting — and it is apparent that crafting policies is not simple. So many conflicting images, some based on facts, others, mere impressions, which are often more important than facts. What should policy-makers do for our needs on such a massive scale with growing shortfalls?

Emulate China

The short answer: learn from China. In the power sector, Chinese suppliers have the following advantages:

• Low-cost access to capital.
• An exchange rate advantage (10-30 per cent).
• No sales tax and octroi, aggregating to about 11 per cent.
• Zero customs duty on equipment for large plants (China imposes a 30 per cent import duty).

Corrective action discussed for years has not resulted in concrete steps. The power ministry, citing supposed user benefits, opposes the planning commission’s recommendation of a safeguard duty. This is as shortsighted as “free electricity” that undercuts investments in power.

In telecommunications, consider Huawei, with revenues of over $20 billion, nurtured for 20 years with the People’s Liberation Army (PLA) as an R&D partner and guaranteed customer, vis-à-vis, say, Tejas Networks from Bangalore, with no government support.

Our policies need to focus on our long-term interests with strategic intent and execution, as in other countries, balancing costs with the benefits of domestic capabilities. These sectors need government procurement support, not criteria that disqualify Indian companies in strategic sectors like power and communications. They also need interim methods for Chinese companies to contribute while upgrading our skills and processes. Our aim needs to be a level playing field.

shyamponappa@gmail.com

* For why “individual ambition serves the common good” doesn’t quite work, see “Prisoner’s Dilemma” at: http://www.lsd.ic.unicamp.br/~oliva/papers/free-software/BMind.pdf

** “An Analysis on the Determinants of Indian Machine Tool Exports”, Rijesh Raju, 2007: http://www.wu.ac.at/europainstitut/noeg/raju_s2.3-2