If delivery is priced below cost, communications services will be unsustainable and ineffective.
The stress in the telecom sector is evident from the data. The market capitalisation of listed telecom operators has been stagnant since the 3G auction in 2010, while the government collected Rs 2.83 lakh crore of non-tax charges from them.1 In March 2010 before the auction, the capitalisation was Rs 1.84 lakh crore; in March 2016, it was Rs 1.71 lakh crore, with the BSE Sensex up nearly 60 per cent. A larger share of earnings has gone to government rather than shareholders, and also to banks as interest (Rs 2.08 lakh crore). The irony is that no operator has bid so far for the most useful spectrum bands on auction, 700 and 900 MHz. Uncertainties abound, and there are several questions.
Reliance Jio's entry, although expected, is a jolt. Will voice calls priced below mandatory interconnect charges be treated as being predatory or anticompetitive? The technicality is that Jio doesn't have high market share, apparently a criterion under competition law. Will this hold, given that Jio's entry has reduced total market capitalisation? Will delivery capability in terms of network size and/or market power from associated businesses be relevant criteria for dominance? What happens when Jio does have sizeable market share?
The Triad of Interests
Even if the criterion for public welfare is user benefits/consumer surplus, judging by price alone is simplistic, because it misses other aspects of service delivery that contribute to the cost-benefit package. One essential aspect is ubiquitous access. Another is effective, consistent service delivery, which requires quality, and stability. A third is the period or life cycle. It doesn't help if you have an inexpensive product or service today, and nothing tomorrow. The definition of long term also varies, depending on one's perception of the life-cycle cost of the product/service. For a user, it may be several years, or his/her life cycle. For a society, it may mean generations.
In addition to consumer benefits, other factors need to be considered from the perspectives of pragmatism and realpolitik. Realistically, a triad of stakeholder interests has to be balanced for a sustainable beneficial outcome. These are: consumer and producer surplus, and what might be termed "government interests" in the broadest sense defined below. The latter has been manifest in many global spectrum auctions, and although detrimental to the sector, is an aspect of reality that cannot be wished away. For example, our governments preferred rationing and auctions to more constructive approaches such as sharing infrastructure, and when the Supreme Court ruled that resources need not be auctioned, spectrum was excluded, which seems logically indefensible. For sustainable, consistent services, champions of all three criteria must partner to adopt mutually acceptable solutions.
Assumptions About Enabling Policies
Certain basic amenities comprise the essential infrastructure that everyone needs to be productive and have reasonable well-being. To some extent, this is linked to reasonably high per capita income. Without it, broad access to good infrastructure is infeasible. It takes that level of organisation, institutions and investment, including its implications for developing and organising human capital, to build such capabilities, as in Organisation for Economic Cooperation and Development (OECD) countries. Emerging economies have to manage with lower order platforms, or a subset of higher order services combined with others of lower order. Prioritisation then becomes the key, and areas of emphasis have to be chosen. This is where the priority accorded to Digital India comes in. If digital systems are crucial facilitators for development and productivity, they need to be accorded that level of importance and effort, with substantive changes to policies.
The government sets the policies and incentives. Government here means not just the central government and the states' executives, but the gamut of regulatory and government agencies: the legislature, the regulators, and the judiciary. These agencies must converge and persuade public opinion to support action in the public interest. Ultimately, society has to pay. If delivery is priced below cost in communications, the services will be as unsustainable and ineffective as in other distorted sectors with freebies.
Shyam [no-space] Ponappa at gmail dot com
1: Krishna Kant: http://www.business-standard.com/article/economy-policy/spectrum-fees-leave-no-money-in-shareholders-pockets-116092701398_1.html, Business Standard, September 28, 2016