The Telecom Crisis Is An NPA Problem

After interim relief for telecom, structural reforms must follow.

Shyam Ponappa   |   November 7, 2019

The Committee of Secretaries to mitigate financial stress in telecom must act quickly on interim measures for the sector to survive. But is its mere survival sufficient for India’s development and growth? Is it possible to fix telecom in isolation?

Our communications needs are very poorly served, although at rock-bottom prices. Is it even possible for our hapless citizens and enterprises to get past shoddy services and productivity foregone, to trade with other countries on a more even footing? Yes, if we succeed at major structural changes, starting with telecom. But to transform telecom, the government and all of us have to come to the stark realisation that just as finance drives the economy, digitisation and communications have to be at the heart of production and delivery. Telecom and digitisation are strategic enablers for all infrastructure and in all sectors. Leading countries are so far ahead and functioning so effectively that it is difficult for us to imagine. We must want that path, plan for it, and put in the requisite effort. Simply tweaking overdue payments, tinkering to reduce charges, and plugging along as before isn’t going to get us there. In this sense, the Committee’s charter is too limited. All it can do is assuage the pain, whereas our need is for a revitalised industry to serve our purposes.

If the Committee’s scope were broader, could we actually adopt digitisation as our core strategy for development and growth? A study on China, “Telecommunications reforms in China”, about the transformation in policies to make digitisation its development priority, is instructive.1 Their approach to reforms was to balance the government’s aims of universal coverage, governance and control, and efficiency; industry’s profit-seeking; and the people and enterprises’ needs for freer, more rapid communications. This is what we need to do, in a way that works for us.

Also, the government, the judiciary, the press and users need to understand and accept that the telecom crisis is part of the larger non-performing assets (NPAs) problem. It has systemic links to NPAs and banking, which links to real estate and construction, electricity and roads, and stable and predictable taxes. Government payment delays and tax terrorism must stop. Business as usual will not resolve NPAs soon to enable growth. These two articles explain why and deserve attention.2 Essentially, entities that take deposits need Reserve Bank of India (RBI) regulation. In a crisis, people with domain expertise and capacity must be appointed to take immediate steps to protect assets and operations, as with Satyam or IL&FS, because seizing/freezing assets often hurts depositors and creditors. A bureaucratic process as with the Punjab & Maharashtra Co-operative bank is likely to result in yet another zombie bank, burning depositors’ money just to stay alive.

The Committee’s focus should be on cash flows, modelling cash flows and their timing, not just the present value of discounted flows, or other extraneous emotional, political, or judicial/administrative reasons. Employment is a legitimate consideration, but has to be sustainable, with timely cash generation. Else, other sources of timely cash support must be arranged, because without sustained cash flows, no gambit or subsidy can succeed (and maintaining unproductive employment will not be possible). Some fixes need major legislative changes to policies.

BSNL & MTNL

On BSNL and MTNL, a recent article sets the context and explains why the revival plan is unrealistic.3 In short, these poorly supported and much-abused enterprises have so much debt that earnings before interest, taxation, depreciation and amortisation would have to be at least 35 per cent. Governments have used them as market spoilers as with Air India, precipitating unsustainable price wars that gutted the industry.

An alternative is to downsize, re-skill as needed, and retain the public sector entities (as one or both) in the role of security-and-public-interest-anchors in infrastructure consortiums. These must be run by the private sector (and in strategic areas, by defence). This will facilitate policies such as assigning spectrum for payment on usage without auctions, and extending Wi-Fi to 60 GHz and 6 GHz (details at: https://organizing-india.blogspot.com/2019/10/extend-tax-cut-logic-to-infrastructure.html, and https://organizing-india.blogspot.com/2018/11/a-great-start-on-wi-fi-reforms.html).

Weak Financial Systems

The Committee needs to apprehend and convey the need to strengthen financial institutions. Financial systems provide second-order infrastructure for productive activity and wellbeing. They need an adequate underlay of first-order, basic infrastructure, comprising communications, energy, water, waste, sewerage, and transport, leaving aside housing and the basics of security, and law and order. While most of us take these for granted, there should be no doubt about how critical these attributes are, and that they are being eroded and increasingly at risk because of social disorder and economic inadequacies. In addition, basic health care and education are essential adjuncts for the supply of trainable people to operate these sectors.

Until some years ago, despite weak infrastructure, financial systems were among India’s real strengths, although eroded periodically by disruptions resulting in NPAs. However, there was strength in the professional capacity of this sector that held up in spite of the pressures. Over time, these institutions have been severely degraded, through laxity, complicity, pressures for evergreening, the abrupt imposition of credit quality and NPAs, the extent of frauds because of lax or complicit supervision and the reputational damage, the buffeting from demonetisation and pressures to cross-sell products such as insurance. Governments need to understand this and support building professionalism, avoiding melas and waivers.

The scope of the Committee could be expanded to set the objectives of telecom and digitisation in the interests of governance, industry, and users, and to outline next steps. They could consider the experience of China and others such as Sweden for this vast effort, while addressing linkages and NPA issues. Perhaps, they could be exemplars by setting the tone for a national approach that is not departmental and becomes bipartisan, and helps to move away from our abrasive, confrontational politics that leads to deadlocks.

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Shyam dot Ponappa at gmail dot com

1: Becky P.Y. Loo, October 2004: https://www.researchgate.net/publication/227426547_Telecommunications_reforms_in_China_Towards_an_analytical_framework

2: Debashis Basu, October 27, 2019: https://www.business-standard.com/article/opinion/how-to-fix-the-pmc-bank-crisis-119101400006_1.html October 13, 2019: https://www.business-standard.com/article/opinion/lessons-from-pmc-why-govt-is-responsible-for-co-operative-bank-crises-119102700620_1.html

3: Rahul Khullar, October 31, 2019: https://www.business-standard.com/article/opinion/don-t-bet-on-bsnl-mtnl-s-revival-119103100040_1.html

Extend The Tax-Cut Logic To Infrastructure

A judicious lowering of input costs can increase productivity.

Shyam Ponappa    |   October 3, 2019 

With the tax cuts, it is as though the government suddenly stumbled on the wisdom of deferred gratification. The government line is that tax cuts will give much more in the long run than revenue lost, and we heartily agree. Yet, this logic isn’t extended to personal and consumer taxes. Nor is it applied to essential inputs to infrastructure to reduce costs further, specifically for radio frequency spectrum for communications, and for coal for electricity.

The cut in corporate taxes is brilliant. A significant step in responsive governance, and so utterly overdue. No ifs and only a few buts, which one hopes influencers and decision makers will consider and act on in short order. The concerns are about interrelated processes (for completeness in end-to-end design and execution, upping the odds of delivery and achievement), and symmetry on the demand side, without which we cannot get optimal results.

Many have expressed reservations about the tax cuts instead of incentives to consumers to revive demand. Some experts have cited the failure of such reforms globally in reviving growth. While these concerns may have merit, the key criteria in such comparisons are whether the circumstances are comparable, or too different. For instance, are the markets large, with scope for expansion, or small, less diverse, or more saturated; what is the level of momentum or inertia? And so on.

While stock markets were euphoric, experts have been divided in their opinion, because demand has been subdued and these are supply-side incentives. Another reason is that companies paying high taxes gain the most, while the majority don’t gain directly in profits. Profits will rise for the highest taxpayers by 11 per cent, while large FMCG companies such as HUL, ITC, and Nestle will increase profits by 9 per cent (Moneycontrol). Profits for IT and pharmaceutical companies are estimated to increase by 5 to 6 per cent, and existing automobile manufacturers are unlikely to benefit directly during this slowdown, although new ones will pay 17 per cent tax, as in Singapore. However, a number of auto component manufacturers who paid taxes at 29-35 per cent will get increased profits of 4 to 10 per cent, and Icra expects localisation to increase. Crisil’s study of nearly 1,000 companies in 80 sectors estimated that profits would increase by nearly Rs 37,000 crore, while the State Bank of India, based on about 3,500 companies (and this newspaper based on 490 companies), estimated increased profits of about Rs 45,000 crore, and India Ratings of Rs 60,000 crore. These profits could result in price cuts, spurring demand.

However, India’s tax rates are still not especially competitive. A recent article in these pages showed that effective tax rates in India are still among the highest after including tax on dividends and share buyback, at 46.8 per cent for existing manufacturers, and 41.1 per cent for new manufacturers. By contrast, comparable rates in Vietnam and Thailand are 20 per cent, and in Indonesia and China, 25 per cent. For details, see chart below.

Source: Sachin P. Mampata & Krishna Kant

https://www.business-standard.com/article/economy-policy/effective-tax-on-firms-still-high-119092601548_1.html

Add costs for improving infrastructure (stable electricity supply; water, sewerage, and waste management; communications; transport and logistics), and law and or­der, and that’s how much must be done for our supply side to be really competitive. Then, there’s demand, which needs a stable, functioning GST system with lower rates, and income tax cuts to match.

If time, energy and money were channelled into these areas instead of events and jamborees, we could be further along in unleashing our potential. Thereafter, skilling and education applied to systematic development could take us even further.

Tax-cuts & infrastructure

It is this episodic intervention without logical consistency or integrated, step-by-step convergence focussed on delivery that results in our disjointed infrastructure, and this infrastructure is the very foundation for our productivity and wellbeing. Apart from apparent lack of systems thinking, detailed process flows,1 and project management, there is also confusion between free-market ideas and the application of any form of industrial policy, because of the backlash from past mistakes with dirigisme and socialist planning.

This is where we have to leap across the chasm, and either “get it” as with the corporate tax cuts, or fail.

Digitisation as development priority

Our broadband and digitisation efforts are disappointingly ineffective.

This is one instance where we should consider adopting China’s approach in developing broadband (except for state ownership) as a priority, driven by a strong industrial policy, “to play a leading strategic economic role and to deliver economic benefits to the Chinese people”.2 India professes similar objectives, but without the detailed planning to adopt broadband and to aid manufacturing. There are expectations about e-services without detailed, step-by-step proposals. In China the broadband network was formally recognised as public infrastructure and incorporated into government plans, and spectrum was not auctioned. The backbone is dominated by state ownership, and private investment in broadband for access in buildings and public facilities (airports, subways, highways) has to ensure fair access to all service providers as a matter of policy.

Two other developments have a bearing on this. One is the move to share spectrum and infrastructure. In July, the UK allowed public access to three bands assigned to businesses, organisations, and mobile companies for use by anyone at nominal cost.3 Another is the deteriorating state of BSNL and MTNL with their 185,000 employees, before they go entirely Air India’s way. As with tax cuts, the government can, after consultation and with participation from the private sector:

• Adopt a beneficial shared infrastructure policy with centralised/cloud Radio Access Networks (c-RANs: See https://www.researchandmarkets.com/research/w8ds5f/global_cran?w=12#summary)
• Give access to all available spectrum on payment based on usage,
• Retrain and use BSNL and MTNL as stakeholders for public security and public interest in consortiums with private operators.

Our interests would be well served at much lower cost by extending this approach to all resources for our collective benefit.

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Shyam(no space)Ponappa at gmail dot com

1: For a good example applied to Aadhaar/PDS, see: Subhashish Bhadra and Varad Pande

https://indianexpress.com/article/opinion/columns/public-distribution-system-one-nation-one-ration-card-scheme-modi-government-6029134/

2: Krishna Jayakar and Liu Chun, 2014

https://www.researchgate.net/publication/267726214_The_Race_between_the_Dragon_and_the_Elephant_Comparing_China_and_India's_National_Broadband_Plans

3. https://www.ofcom.org.uk/about-ofcom/latest/features-and-news/airwaves-opened-up-to-support-wireless-revolution

Traffic Rules, Mindset and On-Time Payments

There's no alternative to following the rules and working together with discipline for our common interests.

Shyam Ponappa   |  September 5, 2019

Payments have gained currency, pun unintended, with the sharp focus on consumer spending and the economy. The following anecdote from newspaper reports begins with a payment problem for a traffic infraction, which leads on to existential questions on behaviour and governance.

A motorcycle rider in Uttar Pradesh was booked for not wearing a helmet. Events spiralled quickly to arrive at the heart of the matter: The state of governance and our utter disregard for due process and the law. But let’s not get ahead of the story.

The rider was an electrician on contract with the UP State Electricity Board. He pleaded with the police to be let off on the Rs 500 fine, saying he earned only Rs 6,000 a month, and hadn’t been paid for four months. The police said it was the law, and issued a ticket. The electrician’s superior interceded at his request, but couldn’t convince the police to waive the fine. (It turned out that tickets had been issued to 70 policemen for traffic violations.)

The electrician checked on the electricity dues owed by the police station. Finding that they amounted to Rs 662,463 over several years, he disconnected their power supply. When questioned, he said that this was as required by the law.

The power supply to the police station was soon restored, with the customary, vague assurance that the bill “would be paid soon”. A positive outcome, however, was that the state electricity board then paid Rs 17 crore of arrears for the month of May to 9,627 contract workers, including the electrician. The remaining amount, they said, “would be paid soon”.

Why were wages delayed? Apparently because consumers delayed payments, and the electricity board didn’t have the money to pay. Employees were still owed back pay for three months. Meanwhile, a formal enquiry reportedly began on the episode.

Such incidents are not unusual. In August, there was an instance in Agra of unpaid sanitation workers responsible for the toilets at the Taj Mahal going on strike. In Noida near New Delhi, two major shopping malls, a hospital, and a school had their water and sewer lines shut off because of unpaid dues. There were apparently 107 defaulters who owed over Rs 10 lakh each, with the highest being Rs 46.35 crore.

It isn’t as though citizens and the private sector are the sole culprits, with only stray government entities defaulting. A former Confederation of Indian Industry chairperson said in an interview on television recently that while hard data on government dues to the private sector are unavailable, informal estimates of the dues from central and state governments, state-owned companies such as electricity boards, and arbitration awards, ranged from Rs 2 trillion to Rs 5 trillion. Her observation was that if these dues were paid, it would provide the biggest boost for the economy, because it would result in much-needed capital formation and economic rejuvenation. As to where the funding could be found, given the government’s finances, she replied that the same sources (for example, bonds) could be used that would fund whatever waivers or incentives the central and state governments were promising. Those funds could be channelled for productive use in capital formation by their rightful claimants.

Stepping back for perspective, the problems appear to stem from slack implementation of protocols (defined, sequential steps), whether it is the discipline of timely payments, or rules and regulations. The same malady afflicting payments shows in the disregard for traffic rules, and the confusion in disallowing tyre shredders to discourage driving the wrong way, which is even more dangerous to the public.

In some cases, the design itself is flawed. For instance, resources for infrastructure such as coal and spectrum need to be priced low to facilitate productivity. If auctioned at a premium, instead of abundant supply of good quality at reasonable prices, the supply is constrained in quantity or quality, or priced high. Other instances are of processes not thought through in terms of design (e.g, stranded power generation. A requirement of Letters of Credit (LC) for purchasing power has been around, but has not been enforced. Will a new directive enforce this, when banks acting prudently can issue LCs only to distribution companies with strong finances?) The design shortcomings could result from fragmented and episodic attention, disaggregated responsibilities, lack of professional capacity, or simply winging it.

These failings have existed over decades, regardless of the governments in office. Some initial successes, as in mobile telephony from 2003 to around 2011, or in road construction or electricity supply, have not been consistent, nor have they been convergent to yield all-round, sustainable growth of the sort that could result from well-organised orchestration across the board. They have not even been able to sustain their performance, and now comprise the troubled sectors for banking and non-performing assets.

The root causes may be in underlying contradictions in our attitudes. These include feudal and post-colonial (exploitative) notions, with the trappings of a Westminster system, without the requisite culture and preparation of policies, practices and training. The result is either government and citizens facing off in an “Us vs Them”, with citizens often being viewed in the way colonials regarded “the natives”, or episodic “schemes” that fizzle out. Our political leadership and we have to realise that we are in the same boat, and that there is no substitute for working together with discipline for our common interests.

There are no colonial masters here, only their mindsets that we adhere to, without refashioning them for our purposes. This is what we must change over time from a total-solutions perspective, from on-time payments, to law and order including traffic, to waste management,¹ all infrastructure, finance, industry, farming, the arts and daily living.

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Shyam [no space] Ponappa at gmail dot com

1. Bhargava, Anjuli: ‘Cleansing young minds', Business Standard, August 26, 2019:

https://www.business-standard.com/article/opinion/cleansing-young-minds-119082601265_1.html

The Automotive Slump & Industrial Policy

The sector is needed as a growth engine and a risk of collapse needs to be averted.

Shyam Ponappa 

Mention “industrial policy” and there are strong reactions: An angry buzz from free-market enthusiasts, or approval from the diminishing ranks of believers in government intervention. But as economist Dani Rodrik observed over a decade ago, reality has not been kind to either set — neither the belief that the way forward (for developing economies) is through strong government interventions, nor the belief that it is best for the government to stay entirely away from the economy. Although there were successes sometimes with import substitution, planning, and state ownership (a case in point is Indian Space Research Organisation), these practices were often overdone or became inflexible, leading to failures and crises. Likewise, liberalisation benefitted some sections of the economy such as exporters, financial intermediaries, and some skilled workers, but often fell short of economy-wide growth.1

Another topic on which opinions differ strongly is whether development should focus on comparative advantage based on factor endowments, or if structural changes should be attempted through the support and extension of infant-industry protection, as for example in manufacturing electronics and telecom (ICT) equipment in India. In 2009, the Overseas Development Institute in London organised a debate between Justin Yifu Lin, then chief economist at the World Bank and formerly the director of the China Centre for Economic Research at Beijing University, in favour of comparative advantage, and Cambridge University’s Ha-Joon Chang speaking for infant-industry protection. Interestingly, both favoured strong government intervention, although in different ways.2 Mr Lin was for facilitating comparative advantage, while Mr Chang was for treating comparative advantage as a base line to be defied for a country to upgrade its industry.

Industrial policy has many interpretations. There is the “horizontal” notion of basic infrastructure, that is like a rising tide for all aspects of the economy (although the sheer location, proximity and form of infrastructure itself create biases for the favourably affected and against those that are not). The opposite is state planning and control for verticals (picking winners). In between is a mix of degrees of enabling government regulations and support (tax incentives and disincentives, labour regulations, financial consideration, land allotment/zoning or acquisition) and of coordination with the private sector. These can be limited to industry and manufacturing, or more broadly, extend to all economic activity, including agriculture, dairy farming, and services.

Historically, a degree of industrial policy has been practiced everywhere. In the US for example, in the Reagan years (1980s), the Defense Advanced Research Projects Agency (DARPA) created consortiums of government and private sector participants for coordinated action. One was the Semiconductor Manufacturing Technology (SEMATECH) consortium with companies such as Intel and Texas Instruments, to revitalise the US semiconductor industry by reducing manufacturing costs and product defects. Another was The National Center for Manufacturing Sciences (NCMS) for the development of an advanced machine tools and automation industry. Another, Project Socrates3, was a classified programme to ascertain the causes for America’s declining competitiveness, and to develop solutions to re-establish US dominance. Their conclusion was that the US was losing its technology-based ability to compete, because decision-making after World War II transitioned from technology-centric planning to finance-centric planning. Success for the latter is measured by financial returns, whereas for technology-based planning, the objective is to use technology to gain competitive advantage and satisfy customer needs (which presumably leads in the long run to better returns). The Bush administration terminated Project Socrates in 1990, as it was considered an interventionist industrial policy (picking winners) when free-market ideology was ascendant.

Industrial planning and India’s automotive sector

In 2006, the Ministry of Heavy Industries embarked on an initiative conceived in 2002 in consultation with the automotive sector. The Automotive Mission Plan (AMP) 2006-2016 was a programme across government agencies, industry participants, and academics, to make India a global hub for the automotive industry. It was successful despite the slumps of 2008 and 2013-14, and employment increased from 10 million to 32 million by 2016. The next phase is under way through AMP 2016-2026(http://www.siamindia.­com/cpage.aspx), aiming to more than double exports to 35-40 per cent of output, and increase employment by 65 million. Momentum has declined in the last year, however, because of a number of adverse factors. These include confusion and uncertainty regarding policies on diesel and electric vehicles, trade tensions, slowing gross domestic product (GDP) growth here and abroad, higher costs from mitigation strategies and taxes, and funding constraints arising from problems in the financial sector.

With a slowing automotive sector and reports of possible layoffs in large numbers, is urgent policy intervention needed? Some observers think so, while others dismiss the slowdown as cyclical, and reports of distress as exaggerated, to seek concessions to improve profits. Let us recognise that India isn’t comparable to Organisation for Economic Co-operation and Development (OECD) markets. For instance, car ownership in India was under 27 per 1,000 in 2017, compared with several hundred in the OECD countries. That’s the potential for employment to grow, provided industry stays profitable, and investments happen as planned (without denying the downsides: Of mitigating for environmental impact, fuel imports, and having to build more roads).

There is little doubt that India needs the automotive sector as a growth engine. Given its impact on employment in manufacturing and the economy through all the feeder industries and ancillaries, if there is a risk of collapse as in telecommunications, construction, and finance, it needs to be averted if possible. With corporate profits down to 3 per cent of GDP in 2018 from 7.8 per cent in 2008, the government needs to deal with ground realities. The facts must be evaluated to take corrective action if necessary.

There are relevant case studies on possible corrective action, such as a report on steps the USA, France and China took after 2008: “Shifting Gears: Industrial Policy and Automotive Industry after the 2008 Financial Crisis”.4 Our primary requirement is a stable and supportive regulatory environment. Changes, such as policies for electric vehicles or for diesel vehicles, need to be through collective consultation processes. The automotive sector has the Automotive Mission Plan 2016-2026 [and should be followed through].

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Shyam dot Ponappa at gmail dot com

1. Rodrik, Dani: “What’s Driving Populism”, Project Syndicate, July 9, 2019: 
https://www.project-syndicate.org/commentary/economic-and-cultural-explanations-of-right-wing-populism-by-dani-rodrik-2019-07

2. Lin, Justin and Chang, Ha-Joon: “Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate Between Justin Lin and Ha-Joon Chang”, Development Policy Review 27 (5), 2009, pp 483-502: http://siteresources.worldbank.org/INTRANETTRADE/Resources/Internal-Training/287823-1256848879189/LinChangeDPRDebateIndustrialPolicy.pdf

3. See http://quadrigy.com/background.html for the private sector successor corporation.

4. Seung-Youn Oh: “Shifting Gears: Industrial Policy and Automotive Industry after the 2008 Financial Crisis”: https://repository.brynmawr.edu/cgi/viewcontent.cgi?article=1028&context=polisci_pubs

Fix Problems Before Complete Failure

We need some real solutions on the ground.  Examples - Jet Airways post mortem findings applied as the way forward for difficult NPAs; and a radical change of course as strategic participants in consortiums led by the private sector for BSNL and MTNL.

Shyam Ponappa  | July 4, 2019 

There is much talk about improving the big picture in India. What we really need, though, is some successes on the ground — some actual resolution of problems as building blocks for further success. Two instances are discussed below.

The first is a puzzling business failure: Jet Airways running aground in slow motion. It is already bankrupt, but unravelling the sequence could make such financial predicaments, of which there are many, more tractable. India’s once dominant airline slipped up and, inexplicably, was allowed to collapse. Over 16,000 employees are affected, and India’s airline services are in turmoil. One estimate of liabilities was Rs 26,000 crore.

Why didn’t lenders and government agencies use a combination of executive action, judicial process and bridge financing to keep the airline afloat? Did legal obstacles genuinely prevent resolution? Or was it irresolute collective action, including lenders being gun-shy because of the Non-Performing Assets (NPAs) and witch-hunts, or manipulation, complicity, or vindictiveness? Answers and corrective action could help fix other high-profile NPAs.

The second is a macro-level example from telecom: The mishandling of BSNL and MTNL. Since the 1990s, successive governments have repeatedly attempted to give a fresh impetus to these hapless telecom entities, while depriving them of what could actually have made them successful, namely, strong, informed leadership, with independence/non-interference. Consequently, BSNL’s accumulated losses amount to nearly Rs 1 trillion. This is nearly five times Jet Airways’, and double Air India’s accumulated losses until March 2018, the latter being roughly the size of India’s annual health budget.

Sorting out these infrastructure service problems is crucial because of their effect on everything from security, education and healthcare, to work and entertainment.  If BSNL and MTNL can change course constructively, we may be able to get them off their collapsing trajectory. Resolving this situation would remove severe impediments to our effectiveness and convenience, and an enormous drag on productivity. Connectivity and communications are so critical to social and economic capabilities, and our approach for decades has been so flawed and on a disastrous trajectory, that it is incomprehensible that we should be resolutely following this failing path without changing it. Now, the government is reportedly considering infusing thousands of crores into the same business, together with monetising land and assets.

What Is In The Public Interest?

The first step is setting appropriate objectives for BSNL and MTNL. What public-interest needs do they serve? The communications minister mentioned strategic areas like home and defence, and services for crisis management during times of disaster such as cyclones and floods. Two others that he mentioned appear unjustifiable: That they are national assets, and leading providers of free services. The first is just an assertion, while the second is inappropriate for commercial undertakings. It’s time to drop wishful thinking and take honest stock. For instance, after policy statements supporting spectrum sharing, regulations were framed to be so restrictive as to make it not worthwhile. Instead, policy-makers should set objectives that actually serve the public interest.

Thus far, we have had confused and absurdly contradictory objectives in practice: High government collections from auction fees and charges, while expecting ubiquitous, reasonably-priced, good-quality services. It seems self-evident that such contradictory objectives cannot possibly be achieved. The fact that high government charges deprive networks of funds and increase user costs are documented in the following reports:

“A Study of the Financial Health of the Telecom Sector”1 and 

“The Impact of High Spectrum Costs on Mobile Network Investment and Consumer Prices”2

Suggested Objectives

A genuine reset could be attempted on the following lines:

• Connectivity is the most essential objective. The ideal must be balanced with the practical, through trade-offs and phasing. The top cities and clusters have a major share of economic and social activity and are therefore a priority, of which 35-50 may be the fastest growing, with the next 50 requiring attention because of sheer size. For instance, Sweden’s phasing for 2025 is for 98 per cent of the population to have a minimum of 1 Gbps at home/work, 1.9 per cent at least 100 Mbps, and 0.1 per cent at 30 Mbps. But to the extent communications are available in our hinterland together with roads, water and sanitation, activity and prosperity will spread, with less pressure to migrate to urban centres. The longer term objective therefore needs to be good connectivity everywhere (within reason).
• An equally important objective is to safeguard the public interest, while ensuring good, reliable services at reasonable prices. The question is not whether to shut down BSNL and MTNL, but how to provide the right structuring and support including reskilling and continuing education, so that they participate effectively in consortiums and provide safety, security, and oversight in the public interest.
• A third is to avoid disrupting markets with unsustainable prices, including free services. Governments have done this repeatedly in telecom, airline and electricity services. It needs to stop. People need high-quality infrastructure for productivity, not shoddy services that undermine productivity and waste their time, pre-empting better services because of low pricing.
• A fourth is to actively ensure adequate capacity and quality in services to not constrain or waste public resources and potential. This is to avoid the shoddy services referred to above, that are bottlenecks that subvert alternatives as low-priced barriers to competition, through constraining revenues while draining public resources.
• Finally, we must embrace infrastructure- and spectrum-sharing. Sweden provides a model not only for the European Union, but also for India. Singapore had a model public-private partnership until some years ago, when SingTel, a passive anchor partner, took over OpenNet. We need mandatory active network sharing (including spectrum) through consortiums run by the private sector, with BSNL and MTNL as guardian anchor participants. A report by Stokab in March 2017,³ the City of Stockholm’s IT infrastructure company, provides details of an operator-neutral fibre and mobile infrastructure. 

Resolving connectivity problems that affect many people may be more easily doable than, for example, clearing the NPAs, or reconfiguring agriculture.

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Shyam dot Ponappa at gmail dot com 

1: http://icrier.org/pdf/Working_Paper_380.pdf

2: https://www.nera.com/content/dam/nera/publications/2017/PUB_High_Spectrum_Costs_0517.pdf

3. https://www.stokab.se/Documents/Nyheter%20bilagor/Provins%20rapport%20mars%202017_en.pdf

5G Aspirations and Realities

What the government can do for 5G and Digital India with a Systems Approach.

Shyam Ponappa    |    June 6, 2019

Ah, 5G! The very thought seems to excite so many. What is it? It is a mix of telecom technologies¹ delivering much higher data speeds on more extensive connectivity, using much lower power, with extended battery life, and emitting less radiation, for ways to connect and operate most of the conveniences people use regularly. From smartphones and computers for communications, study, work, research, entertainment, to other devices and machines, such as for managing utilities (electricity and water) at home and the workplace, refrigerators and cooking devices, industrial equipment, transport, and more, so that daily activities are eased considerably. The catch is that 5G is at an early stage in a long process — perhaps a couple of years to manifest in large trials in India, and several more years to be widely available, needing huge investment ($100 billion in India).

Yet, there are compelling reasons for developing India’s capabilities. There is the sheer necessity for India to partially meet its requirements, instead of relying entirely on imports. The big draw is the size of the Indian market and prospective demand, the global market, and the possibility of innovation at this early stage. Domestic capabilities are a prerequisite to afford deployment at a level that would otherwise exceed petroleum imports, with unsustainable effects on our balance of payments. Without domestic capacity, energy imports would limit electronics imports. (This highlights India’s need for solar power development, a separate and equally high priority.)

However, the sobering financial condition of India’s communications industry gives pause. Financial capacity — revenue generation and access to capital, both equity and debt at favourable terms — is required to develop capabilities. After the telecom price wars, even Reliance Jio is reportedly cutting staff. Airtel, meanwhile, having invested heavily in 4G infrastructure, has stated its unwillingness to bid for 5G pectrum unless prices are lower.

The government set up a committee for 5G in September 2017 with a steering group chaired by emeritus professor at Stanford Arogyaswami Paulraj, a pioneer in wireless communications. This committee recommended network deployment as the immediate priority, i.e., rolling out early, efficient and pervasive 5G networks. Technology design and manufacturing capacity were recommended for later phases.

Network deployment needs policy support driven by a Systems Approach, especially for a debt-encumbered sector faced with declining revenues per user, and unused, inaccessible spectrum, even as other countries enhance their lead. This is ironic, because India has real strengths in this sector and a large market, with the potential to catapult productivity and prospects. Yet, government policies have not succeeded in coordinating our reservoir of human resources and potential.

India lags in 5G despite the government’s stated interest in establishing a lead. Spectrum allocation and large trials were scheduled towards the end of 2019, and auctions in 2020. However, government statements this week target 5G trials by September, and auctions by the end of 2019. As spectrum band choices and allocations for trials have yet to be made, this appears overambitious without radical improvement in resolving many such issues.

Also, India’s reserve price for spectrum is seven times Korea’s. As sectoral cash flows are weak, there may be takers only at very low prices unless funding is from external sources as for Reliance. A monopolistic outcome would be undesirable in the public interest. Therefore, shared access with Wireless Resource Virtualisation and Network Function Virtualisation may be a much better solution for network deployment and market development.

Inexplicably, government and the public still view communications as a “government cash-cow” instead of as critical infrastructure, while complaining bitterly about poor delivery from low investment. It is obvious that exorbitant government charges (29-32 per cent of revenues plus corporate tax) crowd out investment. The government can change this, or give up on establishing a lead in communications and 5G. Worse, India will continue to lose out on leveraging communications for development.

Initiate a breakthrough - Apply Systems Thinking

The government can catalyse a breakthrough by doing the following:

a) Reduce borrowing costs and taxes for communications as infrastructure. This aim of the National Telecom Policy 2012 (NTP-2012) has been ignored.

b) Provide adequate spectrum aligned with global allocations. Given India’s low fibre penetration and need for digital technology, allow shared access to all spectrum and infrastructure, with charges for usage based on revenue sharing.

c) Clear administrative impasses through coordination and due process without delay. For example, allocate spectrum immediately for 12 months for trials.

Many countries have completed 5G spectrum assignments and are already deploying 5G. These include Korea, Switzerland, Finland, UK, USA, Canada, Australia, Germany, Russia, Italy, and Japan.²

There are nearly 300 5G deployments, as shown on an interactive map on Ookla’s site (Chart 1).

Chart 1: 5G Map – June 4, 2019

Source: https://www.speedtest.net/ookla-5g-map

In this context, Huawei’s role in India is contentious. One issue is of non-discriminatory trading terms, or fairness in competition.  If an entity such as Huawei achieves global dominance through government support, it competes on terms that cannot be matched because of cost of funds and scale advantages. Such entities can establish dominance in any country against competitors who do not enjoy similar support. Second, while Huawei may be doing nothing different from Nokia or Ericsson, the fact that it is supported by a neighbour with apparently hegemonic behaviour, China, suggests that dependence or entanglement are inadvisable.

To succeed with Digital India and 5G, government can begin by classifying communications as infrastructure, and adopting the approach taken for 5 GHz Wi-Fi.  Take pointers from the US FCC, ETSI, and so on; use spectrum and network sharing to leverage equipment and spectrum fully; support local technology champions such as a fabless chip design unit and a network equipment manufacturer in Bangalore, and a wireless equipment manufacturer in Delhi; and focus only on delivery with sustainable revenue generation.

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Shyam dot Ponappa at gmail dot com

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1: 5G technologies include Multi-User – MIMO (MU-MIMO) to improve reception, small cells for better performance and reduced radiation, WiGig and other high-speed wireless technologies, Software Defined Networks with Network Function Virtualisation, Wireless Resource Virtualisation, and a fibre backbone.

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2: Page 8: https://img.lightreading.com/5g/downloads/webinar-breaking-the-wireless-barriers-to-mobilize-5g-nr-mmwave.pdf

Democracy, Digital India and Networks

Digitisation and democracy are ruled by the ineluctable dynamics of networks.

Shyam Ponappa   |   May 2, 2019 

There’s no escaping the blessing or the curse of the Digital Age in India, any more than the benefits and challenges of democracy. The headlong rush into digitised networks provides incredible benefits of reach and efficiency in many different ways, at the individual and many collective levels — of family, friends, community, nation, polity, work, domain, and so on. It also lends itself to the dark side, plumbing the depths of social, religious, or political factions and tribalism, bigotry, autocracy and fascism, anarchy, social dysfunction, and the rest. Yet, there’s no denying that for India, with all its needs, talents, foibles, and contradictions, digitisation is a great enabler.

Likewise democracy.  Romanticised notions of it are pure fluff, epitomised by selfies at the Parthenon, conjectures about Vaishali, or the spectacle and pageantry of electioneering. The reality was, and is, much harsher, whether then or now. Then, it was the practice of a pri­vileged elite. Now, the reality of de­m­ocracy in India with universal franchise and an insufficiently prepared polity is a space captured by politicians, many of them fractious opportunists, not really prepared or equipped for the complex analysis and decision-making that governance requires. Mo­st citizens, however, have an illusory freedom of choice, despite the choice being restricted to accepting or rejecting incumbents, or choosing repla­cements from among th­e­se very politicians. This is where digitisation has a direct role and enormous impact through media in all its forms, in­cluding the nexus between money and politics as in the Cambridge Analytica episode.

According to McKinsey’s ‘Digital India’ report of 2019, the benefits of digitising India are impressive, although only 40 per cent of the population has internet access, and there is uneven adoption in businesses, leaving considerable room for improvement. Yet, newly digitising sectors have experienced tremendous gains. For example, in logistics, fleet turnaround time has been reduced by 50 to 70 per cent, and digitised supply chains helped companies reduce inventory by 20 per cent. The question is whether and how this can be managed to yield more benefits than detriments, while preserving privacy, social convergence, and harmony, while avoiding divergence, repression, and instability through disharmony.

The Imperative for Conscious Regulation

Network science tells us that real-world networks share two characteristics. The first is growth with time, and the second is that new nodes link more often to more connected nodes, or hubs. Growth and preferential attachment result in the emergence of a few, highly connected, dominant hubs in all networks, whether the networks are of the cells in our bodies, computer chips, transport networks for airlines, social networks connecting people, or the World Wide Web. These characteristics are common across networks of any size and are scale-free.  

Added later: June 7, 2019
[Re the scale-free aspect, for opposing views, see: liorpachter.wordpress.com/2014/02/10/the-network-nonsense-of-albert-laszlo-barabasi/]

Added later: June 15, 2019
[Scale-Free Networks Are Rare-Anna D. Broido and Aaron Clauset-arxiv.org
https://arxiv.org/pdf/1801.03400.pdf]

The dominance manifested by companies such as Facebook, Amazon, Netflix, and Google, combined with the attenuated influence of less connected nodes highlights the role of regulation and structure for equitable development and outcomes in networks. The same issues of dominance and the need for regulation arise in democracy.  In India, outrageous changes introduced recently with regard to election funding have increased opacity and the potential for abuse at the heart of democratic processes. Political parties can now receive foreign or do­me­stic funding from any source without constraint, and funds can be anonymous through ele­ctoral bonds. Introduced with retrospective effect, both the National Demo­cratic Alliance and the Congress benefitted, as previous adverse judgments were nullified. Therefore, one pointer is the need for regulation and appropriate controls applied in a host of areas including news and social media.

Evidence-Based Policies

An entirely constructive aspect of digitisation relates to the application of network science to issues by mapping the links between factors and actionable policies. Examples are the connection between genes and diseases for effective treatment,1 or the feasibility of upgrading products and exports for countries. An example of how proximate products and exports developed over 20 years is visualised in Chart 1, showing the Revealed Comparative Advantage (RCA) of Colombia (COL) and Malaysia (MYS) in production and exports from 1980 to 2000.

Chart 1: Revealed Comparative Advantage – Colombia and Malaysia

Source: Hidalgo et al: ‘The Product Space Conditions the Development of Nations – Science, 27 Jul 2007).  https://science.sciencemag.org/content/317/5837/482

https://www.researchgate.net/publication/6181618_The_Product_Space_Conditions_the_Development_of_Nations

The premise is that most upscale products are from a densely connected core, while lower order products are in a less connected periphery. Countries tend to move to products close to those for which they have specialised skills.

The lower chart is for Malaysia alone (it helps to view enlarged images in co­lour on a screen to trace the progression).

India’s manufacturing and export opportunities in its product space in 2017 are in Chart 2.

Chart 2: India - Export Opportunities Product Space - 2017  $292 billion

Hidalgo: https://atlas.media.mit.edu/en/visualize/network/hs92/export/ind/all/show/2017/

Such interactive charts are available and can help in planning for product areas such as automobile parts, chemicals, or electric motors.2

A great deal of appropriate regulation followed by planning and execution is needed, incorporating insights such as these in areas like governance, healthcare and industrial policy. Realpolitik and preoccupation with obscurantism, religiosity, and caste/tribe, require that changes be driven by unraveling the nexus between politics and funding, evolving a transparent, state-funded system. Is such a transformation possible? Recent developments that have overtaken earlier attempts at electoral reform such as the Goswami Committee (1990) and the Vohra Committee (1993) emphasise an urgent need. But can public opi­ni­on and opportunistic opposition interests converge to effect appropriate cha­nges in political funding? And elicit enlightened government action in public interest projects for health, manufacturing and export policies, agriculture, finance, construction, and so on? A tall order. Perhaps the best hope is that reactions to phenomena such as Brexit help create more equitable practices.

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Shyam dot Ponappa at gmail dot com

1. For connections between diseases and genes, see Alex J. Cornish et al: https://genomemedicine.biomedcentral.com/articles/10.1186/s13073-015-0212-9

2. https://atlas.media.mit.edu/en/
AJG Simoes, CA Hidalgo. The Economic Complexity Observatory 
'An Analytical Tool for Understanding the Dynamics of Economic Development.' Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. (2011)