Telcos Need Three More Bold Decisions

Users and service providers are swimming against the tide even after the abolition of retro tax.

Shyam Ponappa    |   August 24, 2021

Undoing the retrospective tax amendment affecting Vodafone Group and Cairn Energy among others was an excellent move, and proves what the government can do. In this spirit, two more shackles must go for us to fully exploit telecom and digitisation:

a) Adjusted gross revenues (AGR) for telecom operators need to be defined rationally as licence-related revenues by policy and legislation.

b) Spectrum allocation and pricing need a complete revamp. Appropriate policy and legislation can enable spectrum use as a resource for the common good, paid for by a share of revenues for usage instead of auctions. This will make spectrum costs an operating expense, and will not require enterprises to make up-front capital investments, as with other resources: Electricity, water, and leased land.

Like the retro tax, these self-imposed constraints have restricted telecom and digitisation support, limiting our capacity. It is like swimming against the current, whereas policy changes can remove these limitations, enabling service providers and users to swim with the current. Removing all three would do that, putting India’s telecom and broadband into a much higher trajectory in realising our overall potential.

The government must frame policies for the public interest in communications and digitisation in a fair, transparent way, to break out of the absurd situation of pricing spectrum at five times the Organisation for Economic Co-operation and Development nations, whose per capita income is 15-20 times higher. This will help us resolve the contradictions of the lowest-priced broadband with the highest cost structure, and atrocious service quality.

Policies to Clear Impediments

AGR: The overreach in the AGR definition is a self-created obstacle. The Department of Telecommunications (DoT) left the term undefined in the licence agreements in 1999. It was to be defined with the Telecom Regulatory Authority of India’s (Trai’s) recommendation, but when finalising licence agreements in 2002, the DoT ignored the recommendation that AGR should include only revenues from cellular mobile services. The operators’ appeal before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in 2003 was upheld in 2006; the DoT appealed in the Supreme Court. The SC refused to intervene, but ruled that the DoT could pursue its concerns with the TDSAT. The TDSAT in August 2007 accepted most of the recommendations made by Trai. And so it went, with many disputes and appeals by the UPA as well as the NDA governments, until a TDSAT judgment in 2015 overturned previous TDSAT orders, excluding only capital receipts. Later, an SC judgment in 2019 even included capital receipts.¹

The following instances illustrate the absurd claims, contradictions, and orders:

• The government had informed the SC in a hearing in 2011 that non-telecom revenues were not to be included in the AGR.²  Yet, the TDSAT judgment of 2015 citing this statement ruled exactly the opposite, excluding only capital transactions.
  
  
• The SC’s judgment of October 24, 2019, dismissed the Trai and TDSAT recommendations of 2006 and 2007, and extended the definition of AGR to all non-telecom revenues. Previously, various courts had reportedly set aside such claims in 2006, 2007, 2011, and 2015.³
  
  
• Thereafter, in what appears as inappropriate discrimination in the absence of explicit policies, the SC in 2019 excluded public sector dues amounting to Rs 2.7 trillion from GAIL, Oil India, Power Grid, and so on. Expressing outrage at such demands on PSUs, the SC insisted that private operators must pay their dues of Rs 1.47 trillion. No wonder the DoT and the rest of the government seem confused, because like the retro tax amendment, these actions appear to be arbitrary.

Therefore, the government must frame a policy definition for AGR informed by Trai recommendations that is rational, in the public interest for better communications, fair, non-discriminatory between state-owned and privately-owned companies, and transparent.  This will satisfy the SC condition of due process according to government policies.

Spectrum Allocation & Pricing

Current technology favours giving operators shared use of spectrum and networks across all technologies, because coverage and capacity increase at lower cost. Yet, because wireless communications evolved from a time when mitigating interference was the primary technological concern, the method adopted was of exclusive spectrum assignment (“allocation” in common parlance) of distinct bands to each operator. This method, initially a technological necessity, then became the customary practice because governments in many countries sought high fees from spectrum auctions. Many countries suffered as this burden led to the collapse of the sector for a decade.⁴  India was one of these, because the meteoric rise of our mobile telephony stalled, and is now so shoddy. The damage is pervasive, because of inadequate communications infrastructure that affects many areas, such as energy and water management, education and skilling, healthcare, and productivity across sectors —commerce, transportation, hospitality and tourism, manufacturing, agriculture— and in mitigating environmental impact.

Technology needs wider swathes of spectrum for high data throughput. It is also able to manage interference much better. We cannot have effective coverage without better wireless access networks. As we move towards 5G and beyond, the emphasis on wireless communications will increase. This can happen through sharing of spectrum and facilities among operators, which will likely be the norm in 5G and 6G, providing a high multiplier to network usage, while considerably reducing capital investment needs countrywide.

The government has to frame policies that help to do this, by removing obstacles such as retro taxes, AGR, and capital expenditure on spectrum. Replacing an extortionary approach to the communications sector with a constructive emphasis on infrastructure support will get us there, as well as enhance government revenues.⁵  Policies can be framed to help achieve better health, education, skilling, productivity, and living conditions. The major changes of using spectrum as a shared resource with payment for usage through a share of revenues, in combination with undoing retro taxes and AGR, are the required steps. There are different ways to do this, and the government needs to steer the process through consultations to an acceptable way for us to move forward with 4G, 5G and beyond, for effective communications and digitisation.

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Shyam (no space) Ponappa at gmail dot com

1: https://www.theleaflet.in/agr-order-a-case-of-subjective-judicial-overreach/

2: https://dot.gov.in/sites/default/files/TDSAT%20Judgment%2023-04-2015.pdf

3: https://www.financialexpress.com/opinion/why-isnt-govt-at-sc-on-agr-ruling-threatening-of-telcos-like-airtel-vodafone-idea/1775075/

4: https://organizingindia.blogspot.com/2011/02/spectrum-auctions-jhatka-or-halal.html

5: https://organizing-india.blogspot.com/2020/08/configuring-indias-digital-ecosystem.html

Arbitration Awards And The Public Interest

An objective, analytical approach to pursuing or resisting claims and arbitration awards is advisable.

Shyam Ponappa    |   August 5, 2021

The arbitration awards against India’s retroactive tax claims now pose a serious threat. Cairn Energy has a freeze order on Indian government assets in Paris, and similar developments are possible in the US from actions by Cairn and Devas Multimedia. Are there ways to mitigate these threats and reputational damage? Objective analysis of the facts is advisable before deciding the balance of interest in choosing to continue as before, or to consider changes.

The issues go beyond the legitimacy of awards and India’s sovereign rights, to India’s exposure and its commercial implications. The country’s rights are not being questioned; the scrutiny is of fair and equitable treatment under investment treaties, and changes in agreed terms. The choice is to continue as before and take the consequences, or to undertake an informed, objective analysis of likely costs and benefits of resisting or accepting awards before deciding what to do in our interests. The options are to litigate endlessly, or accept awards, or to negotiate acceptable settlements. Resolution would enable reallocation of our energies — our political, administrative, and judicial resources, and society’s productive capacity and mind-share — to more constructive purposes.

Additional considerations include substantial, continuing damage to India’s business reputation for not honouring agreements and awards, and for resorting to repeated appeals. Ideally, dilatory tactics need to be replaced with being more reasonable and less arbitrary. Strategies in the public interest need to be developed, such as the attitude to arbitration in not accepting unfavourable awards. The indirect costs and collateral damage are enormous, such as to the telecom and energy sectors since 2012, to affected companies and employees, to the investment climate, and the cascading effects through the economy. The disarray and inadequacy in telecom, for instance, are partly attributable to this factor. While foreign investment is increasing, the type of investors also matters. Present investments favour quick profits from the market, with less emphasis in building productive capacity in infrastructure, manufacturing, agriculture and so on.

Pranab Mukherjee, who introduced the retroactive tax as finance minister in 2012, wrote in his memoirs that despite the angst, his successors maintained the same stance. He had said at the time that if the law had not been changed, it would have cost the government Rs 40,000 to Rs 50,000 crore, as companies who had not contested similar demands would claim refunds. If this is a fact, how should it affect government decisions? The most important criteria presumably are cash flows, including awards if enforced, and reputational effects going forward.

Compulsions for retaining a law begin from inception, because once the government makes a law, there is a due process to be followed, or the appearance of it. International tax claims cannot be surrendered easily because of the political price for appearing to be weak, or selling out the public interest. While resolution can be by full or partial payment or by litigation, in practice, the default is litigation, followed by protracted appeals. Political and civil decision-makers have no invested commitment — “skin in the game” — to push for an early settlement. Anyone who exercises judgement that results in settling for a lesser amount runs the risk of being subjected to ignominy and accusations of bias or corruption. For politicians, the reputational risk in not pursuing claims is very high. Even Arun Jaitley as finance minister, who was earlier Vodafone’s attorney and called it “tax terrorism”, did not or could not undo it. Further, many officials, including finance and tax authorities and politicians, behave as if they are obliged to defend the indefensible. They seem unaware that similar compulsions drive legitimate private sector concerns. Shareholders expect companies to prosecute fair claims and defend against unfair demands, and companies cannot give up prosecution or defence if they have reasonable chances of winning. In legal battles of attrition, if the government takes a stand that others consider unreasonable, the country pays, while lawyers prosper.

Awards against India include Cairn’s $1.7 billion, Rs 22,100-crore tax claims against Vodafone that was disallowed by an international court (with legal costs of about Rs 85 crore to be paid), and possibly Vedanta’s claim of $3 billion related to Cairn’s transaction that is pending but could be upheld. India’s appeals against Vedanta’s and Vodafone’s awards are pending. If these appeals are dismissed, together with awards to Devas and its shareholders of $1.2 billion for the cancellation of its contract with Antrix, the total rises to over Rs 40,000 crore.

The government has resisted Devas’ awards successfully for years, and has raised the accusation of fraud in a still pending arbitration with Deutsche Telekom, a former investor in Devas. Meanwhile, internally, the government has probed these accusations repeatedly, and apparently accepted that they are unwarranted. (1)

If this defence fails and/or if there is actual seizure of assets abroad, India may be forced to reconsider. Accepting the awards is also not easy, because it needs radical changes in the government’s approach and behaviour, carried through by changes to all of society/us, in adhering closely to terms. Governments everywhere are sometimes not transparent, and ours has a colonial and feudal legacy of rulers and subjects with pernicious practices on both sides. It is a legacy that has become worse with time, and perpetuates problems in many areas of governance, the economy, and society, because it is pervasive. This mindset will have to change for a more open approach, objective analysis, and decisions based on facts and reason. If this process is begun, it augurs well for our prospects. Cairn, Vodafone, and Devas have reportedly shown willingness to settle. The government should seriously consider evaluating the pros and cons of asset seizure and indirect damages, compared with other options, including possible settlements. By ending these disputes quickly and well, we can hope to build a more reasonable and stable business and investment environment, and better business practices.

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Shyam (no space) Ponappa at gmail dot com

1.a: This article summarises the details: https://thewire.in/government/india-isro-arbitration-antrix-devas

1.b: India’s treaty-based disputes: https://investmentpolicy.unctad.org/investment-dispute-settlement/country/96/india

How to Revive Auto and Telecom Sectors

Illustrative action in key economic areas. 

Shyam Ponappa    |    October 1, 2020

The government can take some immediate steps to assist economic recovery. This involves: (a) Policies for citizens to benefit from public resources (land, minerals, spectrum, water), not exploiting them for any government, person, or special interest (b) Systematic, end-to-end design and execution to completion (c) Cooperation and participation in organisation. The examples below are for automotive manufacturing and communications.

The Automotive Sector

The drop in automotive sales from over two years ago indicates considerable loss of momentum. Figures for vehicle registrations from FY2018 demonstrate this. (See table).

The Covid lockdowns constrained sales even further. Vehicle registrations in August 2020 were 1,188,087, a reduction of 27 per cent from August 2019 (1,623,218). Meanwhile, Harley-Davidson announced the closure of its plant in India, and Toyota expressed concerns about high taxes. A year ago, Ford moved most of its manufacturing into a joint venture with Mahindra. Even in a business-as-usual cycle, because of this sector’s contribution to manufacturing and across sectors, there are legitimate expectations of government support. This is to mitigate negative effects cascading through the economy, the aim being to prevent job losses and reduced employment prospects.

The loss or shift of focus from India to other manufacturing locations warrants urgent action. Tax cuts after shedding ideas such as treating small cars as luxury goods are necessary, but not sufficient. Reducing goods and services tax (GST) from 28 per cent to 12 or 5 per cent is just one step. The revenue deficits can be monetised by printing currency, to be extinguished over time through increased tax collections from higher sales. A vehicle scrappage policy at this time may not be opportune, as it may be ineffective, and can cause undue hardship.

Freeing Our (Manufacturing) Potential

Other measures can be taken besides tax cuts. Because there are so many, the emphasis here is on elements of industrial policy. It does not, however, minimise the most critical issue of social policy, which has been undermined as much as in 1975 during the Emergency, and desperately needs amends.

Reliable infrastructure is one requirement to drive manufacturing productivity and broader economic potential. Manufacturing and service enclaves must be made to work, with stable infrastructure and social conditions. This is essential for local companies to thrive, as well as to attract international investment, and to generate spillover effects.

Past experience suggests we should focus on fewer, well-conceived undertakings in the near term, while building for the longer term, like how telecommunications grew from 2004-2011, the national highways development projects from the late 1990s, and the earlier success of the Anand Cooperative.

Model SEZs

Take, for example, the over 200 special economic zones. Is it not in our interest to make a real success of two or three pilots as intermediate objectives, achieving a few that work, instead of many that do not, and then seek replication?¹ After unbiased selection of locations (the most difficult part), governments (Central, state and local), enterprises, and citizens have to be persuaded to get them to work right, to have them built up and serviced with stable infrastructure and governance, including competitive tax policies, not getting sidetracked by real estate speculation or assuaging political constituencies. Only then would it make sense to replicate them based on the experience and results.

While state and local regulations and practices affect these, the overarching laws and policies necessarily emanate from the Central government. Also, multiple government agencies are involved in any significant infrastructure policy, as with telecommunications, which requires national policies on spectrum allocation and assignment, rights of way and other regulations, standardisation, dispute resolution and penalties.

Additionally, the laws have to be made to work. The widely held fiction that making a statement is tantamount to achieving all that is stated simply has to be given up.

Taxes on Public Resources

The real issues here are stable policies, taxes, and contracts, resulting in investments that succeed. The recent arbitration award for Vodafone against the government’s claim of taxes with interest of over Rs 20,000 crore is, one hopes, an end to proceedings conceived by the United Progressive Alliance and pursued by the National Democratic Alliance. Allowing for retrospective changes means that any agreement can be changed. It is in our interest to accept this award as a lesson in upholding contracts, avoiding retrospective changes, and reviewing and modifying laws prospectively.

An equally unreasonable litigation pursued by successive governments since 2005 is the adjusted gross revenue (AGR) case for the government’s revenue share from telecom operators. The Supreme Court’s 2019 ruling upholding the previously overruled government claim is very damaging for overall economic prospects. Parliament needs to frame legislation that defines AGR as the TDSAT ruled in 2015. The government could then apprise the Supreme Court of the change in policy, and renounce its claims. Together with accepting the arbitration award, this will not only change the prospects for telecom and broadband, but for investments and prospects across the board, although the rest remains to be done to show that it pays to invest in India, by investments being profitable. Perhaps the government will consider acting on these steps.

Measures such as regulations for spectrum bands of 60GHz, 70-80GHz, and 6GHz, are easier to address for immediate results. The government can formulate the regulations as was done for 5GHz, using the US FCC model with some modifications. Then, there are the policies only the Central government can initiate, on issues such as consortiums for shared infrastructure and manufacturing, that need to be given shape and form to make them realities.

Above all, we need the powers-that-be to give up their durbar-style of operation, and start applying the principles of cooperative action and shared infrastructure with all stakeholders, to improve collective outcomes.²

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Shyam Ponappa at gmail dot com

1. SEZs failures: (a) Reuben Abraham: India needs to copy China's Special Economic Zones better 

(b) Meir Alkon, Princeton: Do SEZs Induce Developmental Spillovers? Evidence from India's States

2. Elinor Ostrom: Governing the Commons, Cambridge University Press, 1990. 

India's 'Self-Goal' in Telecom

And urgent steps to avert a cascading crisis.

Shyam Ponappa   |   March 5, 2020

The government apparently cannot resolve the problems in telecommunications. Why? Because the authorities are trying to balance the Supreme Court order on Adjusted Gross Revenue  (AGR), with keeping the telecom sector healthy, while safeguarding consumer interest. These irreconcilable differences have arisen because both the United Progressive Alliance and the National Democratic Alliance governments prosecuted unreasonable claims for 15 years, despite adverse rulings! This imagined “impossible trinity” is an entirely self-created conflation.

If only the authorities focused on what they can do for India’s real needs instead of tilting at windmills, we’d fare better. Now, we are close to a collapse in communications that would impede many sectors, compound the problem of non-performing assets (NPAs), demoralise bankers, increase unemployment, and reduce investment, adding to our economic and social problems.

Is resolving the telecom crisis central to the public interest? Yes, because people need good infrastructure to use time, money, material, and mindshare effectively and efficiently, with minimal degradation of their environment, whether for productive purposes or for leisure. Systems that deliver water, sanitation, energy, transport and communications support all these activities. Nothing matches the transformation brought about by communications in India from 2004 to 2011 in our complex socio-economic terrain and demography. Its potential is still vast, limited only by our imagination and capacity for convergent action. Yet, the government’s dysfunctional approach to communications is in stark contrast to the constructive approach to make rail operations viable for private operators.

India’s interests are best served if people get the services they need for productivity and wellbeing with ease, at reasonable prices. This is why it is important for government and people to understand and work towards establishing good infrastructure.

What the Government Can Do

An absolute prerequisite is for all branches of government (legislative, executive, and judicial), the press and media, and society, to recognise that all of us must strive together to conceptualise and achieve good infrastructure. It is not “somebody else’s job”, and certainly not just the Department of Telecommunications’ (DoT’s). The latter cannot do it alone, or even take the lead, because the steps required far exceed its ambit.

Act Quickly

These actions are needed immediately:

• First, annul the AGR demand using whatever legal means are available. For instance, the operators could file an appeal, and the government could settle out of court, renouncing the suit, accepting the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruling of 2015 on AGR.

• Second, issue an appropriate ordinance that rescinds all extended claims. Follow up with the requisite legislation, working across political lines for consensus in the national interest.

• Third, take action to organise and deliver communications services effectively and efficiently to as many people as possible. The following steps will help build and maintain more extensive networks with good services, reasonable prices, and more government revenues.

1. Enable Spectrum Usage on Feasible Terms

1. Wireless regulations

It is infeasible for fibre or cable to reach most people in India, compared with wireless alternatives. Realistically, the extension of connectivity beyond the nearest fibre termination point is through wireless middle-mile connections, and Wi-Fi for most last-mile links. The technology is available, and administrative decisions together with appropriate legislation can enable the use of spectrum immediately in 60GHz, 70-80GHz, and below 700MHz bands to be used by authorised operators for wireless connectivity. The first two bands are useful for high-capacity short and medium distance hops, while the third is for up to 10 km hops. The DoT can follow its own precedent set in October 2018 for 5GHz for Wi-Fi, i.e., use the US Federal Communications Commission regulations as a model.1 The one change needed is an adaptation to our circumstances that restricts their use to authorised operators for the middle-mile instead of open access, because of the spectrum payments made by operators. Policies in the public interest allowing spectrum use without auctions do not contravene Supreme Court orders.

2. Policies: Revenue sharing for spectrum

A second requirement is for all licensed spectrum to be paid for as a share of revenues based on usage as for licence fees, in lieu of auction payments. Legislation to this effect can ensure that spectrum for communications is either paid through revenue sharing for actual use, or is open access for all Wi-Fi bands. The restricted middle-mile use mentioned above can be charged at minimal administrative costs for management through geo-location databases to avoid interference. In the past, revenue-sharing has earned much more than up-front fees in India, and rejuvenated communications.2 There are two additional reasons for revenue sharing. One is the need to manufacture a significant proportion of equipment with Indian IPR or value-added, to not have to rely as much as we do on imports. This is critical for achieving a better balance-of-payments, and for strategic considerations. The second is to enable local talent to design and develop solutions for devices for local as well as global markets, which is denied because it is virtually impossible for them to access spectrum, no matter what the stated policies might claim.

2. Policies and Organisation for Infrastructure Sharing

Further, the government needs to actively facilitate shared infrastructure with policies and legislation. One way is through consortiums for network development and management, charging for usage by authorised operators. At least two consortiums that provide access for a fee, with government’s minority participation in both for security and the public interest, can ensure competition for quality and pricing. Authorised service providers could pay according to usage.

Press reports of a consortium approach to 5G where operators pay as before and the government “contributes” spectrum reflect seriously flawed thinking.3 Such extractive payments with no funds left for network development and service provision only support an illusion that genuine efforts are being made to the ill-informed, who simultaneously rejoice in the idea of free services while acclaiming high government charges (the two are obviously not compatible).

Instead of tilting at windmills that do not serve people’s needs while beggaring their prospects, commitment to our collective interests requires implementing what can be done with competence and integrity.

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Shyam (no space) Ponappa at gmail dot com
1. https://dot.gov.in/sites/default/files/2018_10_29%20DCC.pdf
2. http://organizing-india.blogspot.in/2016/04/ breakthroughs- needed-for-digital-india.html
3. https://www.business-standard.com/article/economy-policy/govt-considering-spv-with-5g-sweetener-as-solution-to-telecom-crisis-120012300302_1.html

Comments & Responses-2020-03-06

ASIT

Facilitate - that's anathema. Technology has moved too fast and will continue to outpace the convolutions of the bureaucracy. First, they need find who wrote the Rule related to AGR, who signed off on it - it must all be on the record - and let the country know who thought Revenue was all that was important, nothing else. Rescind the definition retrospectively, we love doing that , why not here where it significantly impacts the aam admi ? That may be tantamount to admitting guilt in some form in bad rule writing, but then as the world loves to say, we can all move on - where to, no one knows.

Response re Facilitation:

Two instances where our governments have done well are in IT enabled services pre-2000, and in 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[this was written in Augsut 2019, therefore now two years, and facilitation has faltered], 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.”

From: https://organizing-india.blogspot.com/2019/08/the-automotive-slump-industrial-policy.html

NARENDRA M.APTE

1. This is an interesting view on the current scenario in the telecom services sector. 2. I am a very small customer of telecom services, one among the millions. I say that so long as quality of service provided to me is good and so long as service is provided at a reasonable price, I have no reason to favour this or that provider of telecom services. 3. Question is this: should I be really concerned about financial health of telecom companies? 4. It is desirable that there are proper discussions between the telecom companies and the Department of Telecommunications (DoT) as regards final liability of telecomm companies towards AGR dues. These discussions should be held with a simple objective- to end the uncertainty about AGR dues. 5. One wonders what kind of relief our Central government can grant to three telecom companies, particularly to Vodafone Idea, the merged venture of Vodafone and Idea Cellular. In case the govt. grants such relief, who would be the beneficiary? Would we, as telecom services customers, benefit in the long run? Once an amicable solution is found to current problems of telecom companies, DoT should advise the telecom companies to pay the dues as per the solution. If this does not happen, then customer like will face many a problem and there may be unintended ramifications.

Response to #2-4: Should citizens be concerned about the state / health of industry sectors (and telecom in particular)? 

Answer: If the product or service is in the category of Fast Moving Consumer Goods, competition among many providers is generally sufficient to ensure quality and price, provided the market can support a reasonable/realistic price that allows maintaining certain levels of standards.  What’s a reasonable/realistic price?  One that yields a reasonable profit.  What are adequate levels of standards?  Safe, healthy, hygienic and aesthetically pleasing, for instance, for inexpensive biscuits or food items, or soap, in terms of ingredients, cleanliness, attractive presentation or packaging, and waste management.  For infrastructure services, scale of organisation, production and delivery determine the market structure.  Sectors such as electricity, water, telecom, railways, airlines, and fossil fuels are network industries driven by scale.  The structure tends to have no more than a few large players, and these industries usually require regulation to prevent monopolistic exploitation, or are managed as regulated utilities.  For such products and services, the state of the industry determines the availability, quality and price.  This is why it behoves citizens to take an informed view that supports sustainable models for the long term, in order to have stable supply of services or products of good quality at reasonable prices.  Otherwise, they are likely to get shoddy, overpriced, or unreliable services, or as in rural broadband for many people, it may not be available at all.

[e.g., see https://www.sciencedirect.com/topics/social-sciences/network-industry]

#5:

We in India often expect governments or enterprises to provide for our needs without having to think about them.  Whereas as citizens in a democracy, self-government implies the obligation – the flip side of citizens’ rights – to contribute to the maintenance of standards and governance in our communities, including through exercising consumer choice and advocacy.  The objective of any problem resolution should be the sustained common good or public interest, although we have typically not applied such clarity and forethought in our approach.  But having had a democratic franchise thrust upon us without having learned the duties of citizens, we haven’t got there yet.

Recapturing the Commons

Regulations that facilitate infrastructure with appropriate public resource use will enhance productivity.

Shyam Ponappa   |   March 7, 2019

Growth in the third quarter was disappointing, but there are signs of a cyclical recovery, with a Purchasing Managers Index for manufacturing at a 14-month high. For a significant upward shift of our growth curve, however, apart from lower interest rates, policy-makers have to be constructive. What might we wish for? Here are some suggestions.

Accept the reality that investible funds in India are insufficient for our needs. These include our stock and net inflow of capital, and profits available for investment. We can try to increase our productive capacity or choose business-as-usual, thereby staying below our potential. Why? Because our activities aren’t profitable enough to induce and sustain investment. We need investment —in hard infrastructure, such as transportation and logistics, electricity, water and sewerage, and communications, and in second-order infrastructure, such as security and law and order, health care, education and training, banking, finance and insurance. There’s also the need for reorganisation of markets and practices, e.g., in agriculture, infrastructure, and government procurement.

There’s little doubt that digital connectivity is invaluable for all these. While the imperative is clear, the question is how to orchestrate achieving the desired results.

The telecom operators, alas, have low profitability, inadequate network coverage, and too much debt. Continuing as before means subpar access and productivity for all. We are all hamstrung, and even more so in rural areas. Because of the expanse an7d scattered users there, connectivity entails much higher costs with lower revenue potential.

Self-Organising Infrastructure – A Conceptual Flaw Without Regulatory Support

Meanwhile, there are conceptual flaws in our approach. The National Optical Fibre Network (Bharat Broadband Network Limited or BharatNet) was conceived as a countrywide fibre backbone. The plan was for optical fibre links to 250,000 gram panchayat villages covering India’s approximately 600,000 inhabited villages. A major assumption, however, was that private operators would build access networks to villages and to users. This was unrealistic for a number of reasons. First, there’s the cost of covering sparse users over large expanses with low revenue potential. Second, the supportive regulations for wireless technologies to build the access networks were/are not in place. For example, even for the established 5 GHz WiFi range used globally for WiFi hotspots, restrictive policies meant that 5 GHz equipment could not be used effectively in India in urban or rural installations. This changed with new regulations for 5 GHz, but only four months ago in October 2018 (for details see https://organizing-india.blogspot.com/2018/11/a-great-start-on-wi-fi-reforms.html).

Other wireless technologies for intermediate- and last-mile links are still blocked, and need enabling regulations.

• The 700 MHz band: No operators bid for this given its high price, although it is very useful for covering distances of 5-10 km, and can penetrate walls and foliage. This band together with the 500 and 600 MHz bands could be used to connect gram panchayats to nearby villages. A study of inter-site distances in 14 states shows that most villages would be covered with this range (see Chart below).
  
  
  Study of Inter Site Distances - Gram Panchayats and Villages

• Source: https://tsdsi.in/wp-content/uploads/2019/02/Krishna-Ganti-Day-1-5th-Session-1.pdf

• The 500 and 600 MHz bands are allocated for TV, and therefore are part of the “tragedy of the unused commons”. Only a small fraction is used for broadcasting in India because of limited free-to-air TV and better alternatives. As they are earmarked for broadcasting, they are not used for telephony either.

• The 70-80 GHz band (E-band) is effective for short-range links covering more users at 3-4 km, but not permitted in India, although it is light-licensed in many countries with nominal fees, e.g., the USA, UK, Russia, and Australia. While ideally our regulations should align with global norms, there are exorbitant charges on operators (reportedly 37 per cent, plus corporate taxes), a debt overhang from spectrum auctions, huge investment needs, and relatively low revenue potential. Compelling arguments to let operators use the E-band with unlicensed access, with registry on a geo-location database to manage interference, to be reviewed after some years. The additional traffic will generate revenues from which government collections will increase.

• The 60 GHz (V-band for distances up to 1.6 km): the Cellular Operators Association of India (COAI) opposes making it licence-free as in most countries, and wants it assigned to operators for access and backhaul. For the same reasons as for E-band, operators could be allowed unlicensed access, with a review after some years.

Market Structure and Organisation

A larger problem is that legacy structural and organisational issues need concerted efforts to take requisite policy initiatives. This is perhaps a greater, more urgent need for ubiquitous connectivity.

Successive governments have struggled with revival plans for BSNL and MTNL, somewhat analogous to Air India and Indian Airlines in aviation. Governments have not provided sustained support for ambitious connectivity objectives. There is sometimes inadequate understanding of fast-changing, technically complex enterprises, and episodic attention is given to large enterprises that need timely capital- and skill-intensive decisions (and decision-makers in place), and the upgrading of skills and operating practices. BSNL and MTNL are declining, with bailouts, market disruption through price-cutting, and inability to deliver profits. This is a huge opportunity cost on citizens. However, it is conceivable that with appropriate leadership, and organisational and capital backing, these enterprises could contribute effectively to ubiquitous connectivity, rather than being a drag and/or a disruptive factor. This could happen, for instance, if an alliance were possible with private sector operators providing leadership, organisation and capital, while state ownership concentrates on safeguarding the public interest.

Bharti Enterprises’ Chairman Sunil Mittal has suggested an alliance with Vodafone for an optical fibre network. Bharti and Vodafone already have a joint venture, Indus Towers, providing passive infrastructure services to operators. If regulations enabled active infrastructure from a consortium including BSNL and MTNL, it would leverage the infrastructure while reducing the capital requirements, and increase delivery capability. The entire thrust of regulations could be oriented to facilitating service delivery, leveraging capital, equipment and human resources.

The regulatory approach should aim to facilitate access equitably to public resources that belong to citizens, and not to create obstacles.

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Shyam (no space) Ponappa at gmail dot com