Those who cannot remember the past are condemned to repeat it - George Santayana.
Reprise good decisions, and avoid the missteps.
Shyam Ponappa | March 3, 2016
Past decisions deserve scrutiny when we can learn from them. The Budget expects about Rs 75,000 crore from spectrum auctions. What will be gained and lost? A study by the Telecom Regulatory Authority of India (TRAI) in 2005 has some pointers for policies going forward. These relate to decisions that enabled the proliferation of mobile telephony between 2003 and 2011. Other decisions had less salutary outcomes, which we would do well to recognise and avoid. Reviewing some of these could influence supportive policies, resulting in industry growth with enhanced user benefits and government revenues.
1. Reasonable fees increase govt revenues
The TRAI report cited below states that as a consequence of the New Telecom Policy 1999's (NTP-99's) shift to revenue sharing for licence fees and spectrum usage charges, government revenues soared. Collections through March 2007 greatly exceeded the auction payment commitments of Rs 19,314 that were given up.
The NTP-99 stirred controversy because of this opportunity loss, as a suspected sellout to the private sector. However, government collections actually turned out to be much higher through revenue sharing. Operators did indeed benefit, but for a good reason: explosive growth in mobile services. Users also benefited immensely through the rapid spread of widely accessible services at relatively low cost, as did government revenues.
In the chart below, the second column shows the auction fees foregone through March 2007 after adopting the NTP-99, amounting to Rs 19,314 crore. The third column shows annual government revenues collected, while the fourth column shows cumulative government collections. Compared to the opportunity cost of auction revenues foregone of Rs 19,314 crore, government collections by March 2007 amounted to over Rs 40,000 crore, more than double the "loss". With revenue sharing, collections did not stop in March 2007, and by March 2010 were nearly Rs 80,000 crore, or four times the "loss". By March 2015, the "loss" had been made up by more than eight times, by collecting over Rs 1.6 lakh crore.
Sources
Column 1 - 1999-00 to 2006-07:
Indicators for Telecom Growth, Study Paper No. 2/2005,TRAI:
Columns
2 & 3 – 2002-03 to 2009-10:
Performance Audit Report on the Issue
of Licences and Allocation of 2G Spectrum by the Department of
Telecommunications, CAG:
Columns
2 & 3 – 2010-11 to
2014-15 are from the TRAI web site:
http://www.trai.gov.in/Content/PerformanceIndicatorsReports/1_1_PerformanceIndicatorsReports.aspxIn hindsight, a combination of policies, market structure/competition, and technology resulted in enormous growth, much higher government collections, and tremendous user benefits. A key impetus was the adoption of the high-volume-low-margin approach of Henry Ford's "Model-T" strategy. This principle is an essential ingredient for achieving Digital India.
2. Unenforced regulations lead to chaos
In our conditions of deficit infrastructure with constrained capital, the need for collaborative access to capital-intensive resources cannot be sufficiently emphasised. It's either that or do without the connectivity, as we've had to so far.
Although several operators negotiated a degree of resource-sharing among themselves that was permitted, the industry couldn't converge on collaborative approaches to highly capital-intensive network building and service delivery, nor did the government devise supportive policies. Those in favour of unbridled market forces may approve of such intense competition. However, the cost of creating capacity and expanding networks is so prohibitive that, as a study on EU networks suggests, "as market conditions appear to be insufficient in most countries so far to trigger broad-scale NGA [Next Generation Access (Networks)] roll-outs in view of high investment requirements… and risks, identifying the right policy measures becomes crucial." It concludes, "public subsidies are the dominant policy alternative in white [unprofitable] areas, whereas access regulations can be the preferred policy in white or "grey" areas, where only monopoly structure or co-investment models lead to private investment."1 And this is for the Organisation for Economic Co-operation and Development.
The takeaway: good policies are essential, but are meaningful only if they are enforced. Otherwise, we all suffer the opportunity loss.
3. Global developments in sharing infrastructure
A major change globally has been a move towards sharing infrastructure. One motivator is broadband usage needs for greater capacity including for wireless delivery. The US pioneered a solution for better spectrum utilisation by permitting secondary sharing while primary holders retain rights of priority access. The FCC permitted commercial access to 150 megahertz in the 3550-3700 MHz band (3.5 GHz Band) in its ruling of April 17, 2015.2 Work is under way in Europe on Licenced Shared Access, eg, in 2300-2400 MHz.
Another motivator for sharing infrastructure has been the financial challenge of providing rural and suburban coverage. Shared networks enable more effective and efficient coverage through multiple operators in such markets. Operators save on capital and operating expenses, while gaining access and higher profit potential. For users, better services improve financial prospects, convenience, and access to services that are otherwise inaccessible, including in areas like health care, education and skills development, and government services. Network sharing equipment is now available to support multiple operators and technologies to make sharing a reality.
We need to stop obstructing ourselves with our own rules. Our regulations must instead enable us to make the most of our capital and potential.
Shyam (no-space) Ponappa at gmail dot com
1 "The Impact of Alternative Public Policies on the Deployment of New Communications Infrastructure - A Survey", Briglauer et al: http://ftp.zew.de/pub/zew-docs/dp/dp15003.pdf
2 Amendment of the Commission’s Rules with Regard to Commercial Operations in the 3550-
3650 MHz Band: https://apps.fcc.gov/edocs_public/attachmatch/FCC-15-47A1.pdf
Comments
ASHOK
This piece of advice is more easily tendered than acted upon, true, but governments must avoid painting themselves into fiscal corners where concern for the long term health, growth and profitability of each sector of the economy is subsumed because forbiddingly high commitments - universal food security, for example - have to be honoured. Early days yet, but the pendulum is swinging quite a bit towards populism.
March 03, 2016, Wednesday
