Telecom Reforms: Relief - With Hope?

 

This could be a good first step towards a real transformation.

  Shyam Ponappa    |   October 7, 2021

At first glance, the big-bang telecom relief package last month might seem disappointing. A closer look shows the possibility of real promise. Could it be a subtle masterstroke, the first in a series of steps that will revive the sector? Here’s why.

• By not fully resolving the debt burden to result in sustainable cash flows, it gives the impression of a grudging debt-restructuring that doesn’t quite revive the patient, while prolonging the agony.
  
  
• However, it provides immediate relief with a four-year moratorium on cash outflows.
  
  
• An issue that defied resolution since 2003, of what constitutes revenues for sharing, has been defined rationally as revenues from telecom.
  
  
• The spectrum usage charge has been rescinded.
  
  
• Solutions for revival are to be worked out as next steps.
  
  

Although the last three are prospective, telcos get immediate relief without awaiting the formulation of complex solutions. The relief is temporary though, as outstanding dues must be paid with interest. Unless much more is done, there will be a prolonged attrition, with high opportunity costs from the continuing non-availability of services that severely constrain our capacity and productivity.

Meanwhile, another significant reform was introduced unobtrusively: Active network sharing. Blocking active sharing amounts to depriving the country of full utilisation of capital-intensive resources. Imagine having separate private road systems, or gas pipelines, and insisting that vehicles (or gas) must go from place to place only on their own networks. This was the situation in telecom until interconnection was made mandatory, but the latter did not eliminate network duplication, whereas active network sharing allows for eliminating it.

Thereafter, news that the government may change its position on spectrum charges due suggests more pragmatism. If the above interpretation is correct, the subtlety and quick action while avoiding opposition by not seeming to give away too much augur well.

For transformative reforms and a genuine revival, the Ministry of Communications and Information Technology could take the approach that worked reasonably well for NTP-99, with coordinated planning and initiatives through the PMO across ministries and corporations, and external advice as appropriate. While it was not perfect, the NTP-99’s adoption of revenue sharing succeeded in expanding mobile telephony enormously. Learning from that experience in handling the details may help to avoid situations such as the legal wrangles on the scope of revenues, and the false starts. For instance, the government’s share was set too high initially at 15 per cent, and thereafter, spectrum auctions after the “2G scam” crippled the sector because of the “winner’s curse”, as auctions did in much of the world. We had best avoid such situations.

Wi-Fi Small Cells

The ongoing evolution to small cells amplifies the need for sharing. Mobile handoff to Wi-Fi is already the norm for 4G. Ubiquitous 4G networks and later upgrade to 5G and 6G will require the installation of many more small cells, with Wi-Fi for high-speed user access. These could augment existing Wi-Fi bands (2.4 and 5 GHz) with 6 GHz and 60 GHz when these bands are permitted. Proliferation of small cells will be more feasible because of lower costs and easier installation with wireless point-to-point links instead of fibre, and mandatory sharing. “Wireless fibre” links could use light-licensed (open access to licensed service providers for connecting to the internet) spectrum in the 60 GHz (V-band) and 70-80 GHz (E-band). Gigabit delivery at far lower cost than fibre could be deployed across urban, semi-urban, and rural markets.

Small cells for users need to be built out with “wireless fibre” links from where fibre terminates in much of the country, in urban as well as rural areas. An alternative depending on costs is satellite links to small cells. In effect, the need is for the national fibre network, BharatNet, to be extended to non-urban users outside district and block headquarters. Small cells funded by the Universal Service Obligation Fund combined with the BSNL’s and other installed networks could fulfill this need, with service providers given non-discriminatory access on payment through revenue sharing. A consortium approach with private sector leads could be considered.

Shared Spectrum & Infrastructure

A burdensome remaining constraint for network proliferation is licensed spectrum costs. Yet, the alternative of giving access to a spectrum pool without auctions for a share of revenues would probably result in much higher government revenues, as happened with licence fees after NTP-99 (see charts).

Chart 1: Operator Revenues ($ Billion)

https://www.ibef.org/download/Telecommunications-June-2020.pdf

Chart 2: Revenue Share Collections Exceed Auction Payments After NTP-99

          Telecom Auction Fees Foregone vs Licence Fees + Spectrum Charges

For explanation, see: https://organizing-india.blogspot.com/2020/08/configuring-indias-digital-ecosystem.html

Shared access by licensed telcos to pooled spectrum will enable broadband for more areas and people, with full utilisation of unused spectrum greatly increasing traffic and revenues. The DoT needs to start with regulations for spectrum bands in 60 GHz, 70-80 GHz, and 6 GHz. Thereafter, regulations could be considered for shared spectrum without auctions. (1)

Debt Resolution for Cash Flows

An immediate priority for the sector is sustainable cash flows. The burden of adjusted gross revenue (AGR) and spectrum usage dues arose from misconceived policy errors, by efforts to include unrelated revenues, and overcharging for spectrum. Debt restructuring customarily involves elements such as reduced principal (“haircuts”), interest waivers, and extension of repayment periods, to enable sustainable cash flows. Much of the principal for AGR dues was created by including revenues unrelated to the licences to be paid for, an error corrected going forward. Past licence-related revenues would be much less, and favourable judgments prior to 2019 upheld this. The interest component in AGR dues is about three times the principal. The government could justifiably adopt policies to reduce most or all outstandings with this reasoning, as also consideration of the effort, cost and hardship endured by service providers, their employees, and the public for service deprivation of the critical support that broadband can/could have provide/(d). Further, this would also facilitate investment for better services.

Corrective Policies, Laws, Regulations

A participative process on these issues starting with debt resolution could be used to frame policies going forward, including the requisite legislation and regulations. The above measures can revive and invigorate our telecom sector.

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Shyam (no space) Ponappa at gmail dot com

(1): See “Enable Spectrum Usage on Feasible Terms” at:  https://organizing-india.blogspot.com/2020/03/indias-self-goal-in-telecom.html

Save Telecom With A Reprise Of NTP-99

Radical steps are needed to fix the telecom crisis.

Shyam Ponappa    |   January 2, 2020 

If telecom and connectivity are not revived, one of our most successful sectors since liberalisation will be incapacitated.

To fix this devastated sector, look no further than the National Democratic Alliance (NDA) government’s action 20 years ago to rescue and revolutionise telephony in India through the New Telecom Policy 1999 (NTP-99). It was before India’s growth story and the mobile phone revolution. The telecom sector had stalled, and some 15 operators were struggling for survival under the burden of high licence fee demands, limited customers, and too much competition, with no money to build out networks to earn more revenues to service their overwhelming debt. That was when prime minister Atal Bihari Vajpayee and his team made a bold move, working with industry and professionals to effect what seems in retrospect like magic. They implemented some constructive policies for telecom that set in motion phenomenal growth with vast changes in markets and behaviour.

The situation in 1998-99

The sequence of events began in 1998, when the Prime Minister’s Office (PMO) decided to look into the problems in telecom. After considering studies by ICICI and the Bureau of Industrial Costs and Prices, the PMO consulted with professionals within and outside the government, stakeholders in industry and financial institutions, and formulated the NTP-99. While the policies were not optimal because political accommodation was mixed with objective-oriented processes, a fundamental improvement was that government collected charges from operators as a share of revenues actually earned, instead of up-front payments on auction commitments for licences. This was a difficult political decision, because of a mistaken public perception that it was a giveaway to the operators. The government held firm despite being taken to court, and the decision turned out to be clearly in the public interest, as results detailed below were to prove.

Success did not follow immediately, because the government’s share was set too high initially. However, two developments in 2004 changed the trajectory. Government’s share of revenues was lowered to 8 per cent of revenues, and “calling party pays” was introduced for users, as against both caller and receiver having to pay for a call. This boosted supply as well as demand, resulting in explosive growth in mobile telephony (see Chart 1), making India among the fastest growing and most attractive markets. In hindsight, government collected far more through revenue-sharing than the auction commitments, as shown in Chart 2. Knowing this, it is incomprehensible that governments haven’t built the sector to improve government revenues, instead of bleeding it to the point of collapse.

Source: https://www.ibef.org/download/Telecommunications_171109.pdf
Taken from citation in: http://organizing-india.blogspot.com/2016/03/connectivity-lets-apply-what-we-know.html

Sources - Table
Sources

Column 1 - 1999-00 to 2006-07:

Indicators for Telecom Growth, Study Paper No. 2/2005,TRAI:

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

Columns 2 & 3 – 2002-03 to 2009-10:

Peformance Audit Report on the Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications, CAG:

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

Columns 2 & 3 – 2010-11 to 2014-15 are from the TRAI web site:

http://www.trai.gov.in/Content/PerformanceIndicatorsReports/1_1_PerformanceIndicatorsReports.aspx


The present crisis

The telecom crisis today is much the same as in 1998. Our regulatory policies have resulted in price-wars and beggar-thy-neighbour strategies disrupting the market, while most people are deprived of good, reliable services. Thus, while India has incredibly low prices, they are unsustainable, far below what could reasonably be expected from the high volumes and the experience curve reduction in costs. These price levels do not support even the maintenance of current service levels, let alone expanding coverage to the sparsely populated countryside. Urban areas with low prices often suffer unreliable services of low quality, while less populated areas are deprived of services altogether. Further, the squeeze on operators is aggravated because of the Supreme Court upholding the government’s apparently gaming approach to defining “Adjusted Gross Revenues”, imposing retrospective dues on all spectrum holders.

The government needs to gather the resolve to do what prime minister Vajpayee did in 1999: A radical intervention to revive the telecom sector and the economy. PMO officials have reportedly been meeting with the Department of Telecom for months. Now, we need decisive action, including:

• Revenue-sharing for spectrum charges instead of auction fees, as was done for licence fees in 1999, as the major beneficial change. It would also result in more rational use of spectrum as a public resource for connectivity and growth, instead of just for government revenues.
• Removal of additional spectrum usage charges would greatly facilitate communications for development and growth, correcting impediments to efficiency in India compared with the rest of the world. A windfall profit provision could be instituted in the event there are excessive profits, or inappropriate diversion of funds.
• Policies to enable new technologies. For instance, the latest version of Google Pixel hasn’t been introduced in India because 60GHz is available only with limited bandwidth. In 5G, India is already far behind, and will take years to benefit from this without drastic changes in spectrum access.

Additionally:

• Pooling of spectrum to provide broader bands for higher throughput. This can be done through geolocation database-driven shared spectrum, as in Licensed Shared Spectrum (LSA) in Europe, or Authorised Shared Spectrum (ASA) in the US, and harmonising 60GHz regulations with the US FCC, but limiting its use to operators.
• Possibly structuring spectrum sharing through a consortium approach to infrastructure, and unbundled, use-based costs for delivery. This can be done by separating infrastructure (network development and management) from service provision.
• Another possibility is to have two or three vertically integrated consortiums, each with its own infrastructure (which will require significantly more capital investment).
• An active government role in coordinating industry-wide, consultative, goal-oriented action through the formulation of enabling policies and regulations. Multiple government agencies are involved, namely, DoT, MeitY, TRAI, DD, Finance, Law, as well as state governments for uniform Rights-of-Way and tower installation.

Functioning without mobile telephony seems unimaginable today. Instead of being among the leaders using telecom for our benefit, on our present trajectory we are likely to miss these opportunities for years — unless the government finds the imagination and courage to act.

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Shyam dot Ponappa at gmail dot com