Aiming For The High Road

Government's policies can either enable or limit our prosperity.

Shyam Ponappa  May 4, 2023

There are very divergent views about India’s economic prospects.  Some perceive great promise, while others see big government and unclear strategy.
 

The upbeat take is that investors who put substantial capital into China in its early growth phase are finding patterns mirrored in India that encourage their investment (An updated perspective on India, Business Standard, April 17, 2023). These investors are looking to limit or reduce new investments in China, and, among emerging markets, India is promising with the capacity to absorb large investments. Factors such as Apple’s exports of $5 billion in its first year support this, as does recent enthusiasm about India’s building logistics and effecting a digital transformation. The expectation is that annual growth will be over 6 per cent, and that gross domestic product/capita may grow from $2,500 to $5,000 in six to seven years.
 

A more downbeat view is that India has lost opportunities and made misplaced choices with growth coming from government spending and seat-of-the-pants strategies (Rolling the dice on growth, Business Standard, May 3, 2023). This has led to a constrained, uncompetitive private sector hobbled by disabling regulations, inadequate and unreliable infrastructure (notwithstanding high investment, on which more later), limited capital access, tariff barriers, an inappropriate and ineffective educational approach for employability and improving skills, and impoverishment through electoral handouts to much of the population. Instead of structural changes to provide lower cost infrastructure and efficient governance, the government chose corporate tax cuts to spur growth.
 

The fact is that while India is still in a sweet spot because of its economic resilience, momentum, favourable demographics (although largely unutilised), and improving productivity (1), growth in this decade is likely to average under 6 per cent annually. (See chart).

 

India will continue to outpace global average growth rates of real GDP and real per capita GDP from 2023 to 2030
                                                                                                                     (% change y/y)

 

Some data support this view, such as skewed consumer demand and delayed projects. Consumer demand is stronger at the high end, but weak at the lower end. Infrastructure project delays in March 2023 were reportedly the highest since 2004. These include nearly 57 per cent of projects over Rs 150 crore, resulting in cost escalation of over 20 per cent, amounting to half this year’s capital expenditure budget. 

Presumably this problem is reflected in the Gati Shakti National Master Plan. When public access is permitted, it will be interesting to know about the project management and coordination processes for timely execution, given its roots in a Project Management Institute report.

Higher growth of 8 per cent or above requires more structural change. These begin with policies that (a) provide reliable infrastructure that is affordable, (b) improve capital access, and (c) eliminate “tax terrorism”. Facilitating productivity through infrastructure everywhere would enable more people, including more women and young people, to participate and contribute. 

The next level of productivity improvement requires much deeper change. These extend to assuring a sense of security with law and order, access to meaningful education and skill building, deep changes away from “extensive” agriculture to an intensive, informed approach that is productive and sustainable. A critical prerequisite is cohesive, unifying leadership that inspires cooperation and inclusion.  Regarding better infrastructure, the following observations indicate possible ways to improve: 
 

Road Construction: New roads are being built at a furious pace.  However, two problems hamper our logistics despite the enormous sums spent. One is project delays. The other, more serious issue is the rapid deterioration of roads. While heavy rains do aggravate the problem, the underlying reasons are the quality of construction and lack of timely maintenance, made worse by undue emphasis on the value of contracts and quick implementation. Countries with equally severe weather variations build and maintain better roads. An expert with experience in America and India asserts that the reason is not enforcing requisite standards, quoting John F Kennedy that it is the roads that built America’s wealth. (2) This need for adherence to standards extends to many areas, and would transform our quality and competitiveness. It does not, however, lend itself to big targets and bragging rights for electoral purposes.
 

Communications – 4G, 5G and Beyond: If there were fast, reliable 4G-level connectivity countrywide, and if most people got access to these services, there would likely be a productivity revolution.  It would take much more than just connectivity: Development of content, technology choices and organisation are required to increase beneficial use exponentially. For example, content is needed for agricultural transformation to intensive cultivation, workplace skills and manuals, or K-12 education.
 

For the middle-mile and second-last mile, until the current blitz for BSNL 4G wireless, our policies emphasised fibre.  Widespread fibre-to-the-home is unrealistic in India because of the cost. The way out is high-speed wireless for middle-mile and second-last mile (backhaul), and for last-mile (Wi-Fi and cellular). We need enabling policies for these.
 

Another technology issue is 4G and 5G.  South Korea, leading in 5G, is the exemplar of the “5G fallacy” of getting five-fold speeds after $20 billion in network upgrades, instead of the desired 20 times speeds.  South Korea has nine cities of more than a million people, 42 between 100,000 to 1 million, and 77 between 10,000 to 100,000. They have 215,000 base stations of which only 2 per cent are 28 GHz, covering 45 per cent of their population. India has 48 cities of over 1 million, 405 with 100,000 to 1 million people, and 2,500 with 10,000 to 100,000 people.  We have 102,000 base stations compared to South Korea’s 215,000, and would need many more at unaffordable cost for blanket coverage. What we need instead is high-speed 4G or Wi-Fi, using wireless 60 GHz and 70-80 GHz for the middle-mile, with 6 GHz Wi-Fi for the last mile (in addition to existing Wi-Fi at 2.4 and 5 GHz).
 

One more requirement is technology organisation: Shared networks versus single-operator networks.  Shared neutral host networks (NHNs) are the most efficient, while active sharing by operators costs 70 per cent less per user in an Indian case study. (3) 

It is the government’s choice of policies that can help us on the high road.

---

Shyam (no space) Ponappa at gmail dot com

1: For details, see: “Productivity Growth in India: An Empirical Assessment”, RBI Bulletin January 2023.

https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/02ART19012023C2BCA396B632479BBDD5485D89FDEEF4.PDF

and

Page 10: https://www.imf.org/-/media/Files/Publications/WP/2023/English/WPIEA2023082.ashx

 

2: https://www.nbmcw.com/article-report/infrastructure-construction/roads-and-pavements/why-do-many-roads-constructed-in-india-fail-prematurely.html  

Prof. Prithvi Singh Kandhal has drafted standards for the Indian Roads Congress, and was formerly at the National Centre for Asphalt Technology at Auburn University in Alabama.

 

3. https://www.researchgate.net/publication/368772499_Techno-Economic_Assessment_of_5G_Infrastructure_Sharing_Business_Models_in_Rural_Areas

Shruthi K.A. Kumar and Edward J. Oughton

Unlock = Open, not Choked!

Don't let a virus stall initiatives and weaken the economy.

Shyam Ponappa  |  June 4, 2020

A recent column in this newspaper juxtaposed the way smart, experienced people have high expectations, only to be disappointed by our weak state’s predictable failures (Strong expectations from a weak state, May 25). Is there justification for any optimism, or at least hope? Here is an exploration of reasons for persisting in the face of continued odds, and pushing for economic recovery. Why should one persist with constructive efforts? Because a rising tide lifts all boats, and one’s contribution can affect outcomes. And because attempts at partial opening will not suffice.

There could be new economic opportunities by way of capacity, logistics or markets, or a wider array of sustainable consumer choices, whether for manufactured goods, services, or activities. Think back, and surely you have witnessed government action extend beyond the grind of just keeping everything going.

One instance of major change that affected the economy was in 1990, when the secretary of the Department of Electronics N Vittal worked in close consultation with industry. This resulted in path-breaking reforms, such as the setting up of “high-speed” links (of a mere 64 kilobits per second at the time) between Information Technology (IT) companies in Indian software technology parks and their international clients, and various tax incentives that followed much later. The offshore services industry gathered strength, and later expanded to cover IT-enabled services with call centres and business processing, extending to knowledge processing.

Likewise, telecommunications reforms began in 1990, when prime minister Chandra Shekhar led a shaky government for a brief period. The telecommunications ministry was looking for a private sector consultant. Through an invisible network, an investment banker who had been a management consultant in San Francisco was asked to look into telecommunications reforms. This led to the setting up of the Athreya Committee and its recommendations: On separating policy-making from operations, corporatising the Mahanagar Telephone Nigam as an operating company for Delhi and Mumbai, and Bharat Sanchar Nigam for the rest, while recommending access to private sector operators. All this was not smooth and painless, and took years, but did happen eventually, although the separation remains untidy.

By 1998, telecommunications operators were in a situation similar to the predicament some months ago, of weak revenues and a debt overhang, with some differences. There were many operators with heavy debt because of government charges and limited revenue generation capacity, because of smaller networks and less clients. This is the “winners’ curse” of auctions, when exorbitant amounts are paid to government for auctions, with nothing left for building and running networks and enterprises to generate the revenues to justify those payments. There are exceptions, as in the social democrat Nordic states, or state-controlled allocations as in China, or in Japan for a number of years.

Key people in government grasped this. The Prime Minister’s Office consulted with industry and external consultants, and took action. This resulted in the New Telecom Policy 1999 (NTP-99), whereby the major change was converting up-front licence fees to revenue sharing, although the policy was uneven because of cherry-picked recommendations. Initially, the government set the percentage share too high. It took years to reduce and trigger rapid growth. This came about through reduced government charges, calling party pays (which cut call costs), and a price war, brought on by the stealth entry of a new technology (CDMA) network, which the authorities allowed despite incumbent protests. Mobile services then grew exponentially from 2004, until the 2G spectrum scam surfaced in 2011.

A stream of articles advocated extending revenue-sharing to spectrum fees as for licence fees, and for shared infrastructure including spectrum. In 2011, a senior official in the DoT was sufficiently impressed to explore the possibility of evaluating alternatives using simulation models. But the 2G scam broke after the first few meetings of DoT officials, and this process was aborted. Instead of major changes based on simulations, a mere statement of intent about spectrum pooling and sharing made it into NTP-2012.

There were other incredible developments, although with no apparent results (yet). For instance, in 2013, a non-governmental organisation, the Centre for Internet and Society in Bengaluru, arranged for the former chief technology officer of the US Federal Communications Commission, Jon Peha, who had pioneered changes in America, to meet with top officials of the DoT, the Telecom Regulatory Authority of India, and some IIT professors. The latter conducted successful trials using TV White Space spectrum for the Ministry of Electronics and Information Technology. The details are many, but the point is that constructive advocacy can have an impact.

Reviving the Economy Now

We are in a difficult situation, with our economy and society battered by the lockdown and much else. We will need to do everything possible to recover, and it will take years. Attempts at partial opening will not suffice. Systemic revival calls for unrestricted flows of money, people, activity, and goods and services.

While reactivating the economy, we will need to be cautious through the pandemic (through “social distancing”, using masks to reduce infection, avoiding close contact with outsiders, and so on). But survivors have to live with this virus, as with other strains of viruses and bacteria, and other threats.

Consider traffic accidents, which average over 145,000 deaths annually (data 2013-2017: https://ncrb.gov.in/sites/default/files/chapter-1A-traffic-accidents-2017_0.pdf).  Extrapolating, this means a million fatalities in seven years, yet we don’t shut down all traffic. By comparison, Covid-19 had about 6,000 fatalities since January.

A proportion of the medical fraternity opines that (a) there is community spread of Covid-19, and (b) with many cases milder than the expected severity, that most patients need home care rather than hospitalisation. If these continue, our health systems will not be overwhelmed with severe cases. Also, so far, India has had a relatively low fatality rate of 2.8 per cent (see chart).

Source: Data - https://ourworldindata.org/coronavirus

As long as these factors hold, our priority has to be unfettered economic activity. Countries with higher fatality rates, including Sweden, China, Japan and Germany in the chart, have open economic activity (with tremendous productivity). We will weaken and our problems will escalate if we are held back.

---

Shyam (no space) Ponappa at gmail dot com

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.

---

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

More On Those Dropped Calls

A basic problem is that the cost of spectrum and licences relative to earnings is too high, structurally.

Shyam Ponappa   |  September 3, 2015

Will the government's variant of "speak softly and carry a big stick" deliver Digital India in a hurry? Unlikely, because the problem is an overloaded system with a too-spare design, and insufficient cash flows. Increasing call drops are a symptom of inadequate carrying capacity for the demands of traffic, from voice to data in 3G and 4G. These are structural problems, because the system doesn't generate sufficient investible funds; nor are conditions right to develop such investment capacity; nor are the prospects demonstrably healthy. The situation requires the policy changes outlined below, which only the government can bring about, as it has in the past.

A fundamental aspect of the problem is low spectrum availability. India's operators have 12-15 MHz, compared with a global average of 45-50 MHz. Leading countries have even more; for instance, operators in Seoul reportedly have 10 times more spectrum than operators in India. Limiting the spectrum available to operators compels them to invest more to deliver a given level of traffic and quality than if more spectrum were available.

There are other aspects as well:

• high charges for licences and for spectrum, 8+4 per cent of (adjusted) revenues in addition to auction payments,
   
• imported equipment paid for with a weak stream of local-currency revenues,
   
• changes in spectrum holdings that require adjustment in equipment after older spectrum assignments lapse and new spectrum has been acquired, and
   
• the burgeoning need for new investments for 3G and 4G services. Embedded in the latter is the additional overload caused by tower shut-downs and the difficulties in getting additional sites, apart from the need for more capital.

Add regulations that hinder spectrum trading and sharing, and we have a sector that is structurally weak and restricted in scope.

As for call drops, operators in developed markets experienced similar capacity pressures when there was very rapid growth in data usage, for instance AT&T in the US and O2 in the UK some years ago. The difference is that they were able to invest rapidly to shore up their networks. By contrast, Indian operators had to invest disproportionately in acquiring spectrum, leaving less capacity for investment in networks. For example, in 2014 operators in China reportedly invested $35 billion in 4G equipment, whereas in India, only $3 billion went into equipment. Most of its $32-billion investment - $29 billion, over 90 per cent - was for spectrum. There has also been the diversionary effect because difficult business conditions in the sector led to profits being invested elsewhere, instead of back into communications infrastructure. The difference in approach and functional capacity is stark: China is moving ahead with building high-speed data capability, while the struggle in India is with dropped calls and simply keeping users connected. The government, therefore, needs to facilitate conditions whereby operators invest substantial amounts every year.

For this to happen, the structure of high charges for spectrum and licences relative to earnings has to change, as do restrictive regulations. The monthly average revenue per user in India at the end of 2014 was of the order of Rs 110-120. Capital expenditure ranged from 13 to 15 per cent of revenues in 2014, rising to 20 per cent in 2015. The latter exceeds the percentage invested in the US - but the revenue in India is about 25 times less than the $50 revenue in America, and the US has had well-developed networks for decades. Meanwhile, the recent spectrum-sharing guidelines that restrict more than enable effective sharing epitomise our dysfunctional regulations.1  It is baffling why the government would issue such retrograde regulation if the goal is digital development, because these guidelines do exactly the opposite of what is needed.

Government versus Private Sector

Meanwhile, there has been an escalating war of words between the government and service providers. The latter are trapped in a vicious circle of heavy investment requirement with low revenue-generation capacity, as explained above. Breaking out of this trap is possible only if the government develops conducive policies, as it did with the path-breaking changes associated with the 1999 New Telecom Policy (NTP-99). The change at that time was from up-front licence fees to revenue-sharing. It fell short because the government's share was too high, and began to work only after 2003, when government charges were reduced. In like manner, the government needs to frame policies applying similar principles to spectrum, and ultimately to network infrastructure, so spectrum and networks become more productive.

Our problems arise from three sources: regulations and government charges, operator behaviour and responses, and public opinion and the perceptions and actions of the judiciary. The government can take the initiative through creating policies that facilitate investment and service delivery. Many changes are purely administrative, such as permitting unrestricted spectrum sharing without additional "conversion" charges, or reducing licence and spectrum charges. Surely the department of telecommunications, the finance ministry, and the prime minister's office understand the logic of higher net present values that accrue from incremental revenues to operators. Conversely, any restriction of revenues or opportunity loss reduces the government's share, resulting in lower net present values. For example, restricting 3G roaming or insisting on payments to convert administered spectrum before it can be shared limit revenues, resulting in opportunity losses.

The government needs to be persuasive while acting decisively, to influence operators and public opinion through well-formulated systematic initiatives. Tighter monitoring of quality, including dropped calls, and related penalties are needed - but balanced with constructive policies. These could cover enabling regulations such as for roaming and secondary spectrum sharing with the government, and in developing a consortium approach for active network sharing initiated by the government with broad private participation, led by a private-sector partner. Other potential areas include enabling, organising, and facilitating broadband through cable networks, and inducting technologies such as TV White Space and satellites.

This is where the rhetoric of leading Team India has to be walked and not just talked, to persuade and lead the sector to collaborate and not undercut institutional development.

---

Shyam no-space Ponappa at gmail dot com

1 E.g., see https://www.linkedin.com/pulse/sharing-spectrum-operators-steeplechase-parag-kar

Comments

JAHAR

The huge bids while acquiring spectrum at the auctions held recently were bound to impact operator's short run cash flow and investment capability. This in turn impacts network management and up-gradation at least in the short run. No amount of dictats will change this

ASHOK

Would it be over dramartic to say that call drops are the gasps of an industry that is drowning in something other than windfall profits ! Indian businessmen are not saints, true, but they need a more sympathetic hearing in the government's court. If the Savile Row types are in distress, what will happen to the rest of us ?

MANOJ

Nice article, and good points about institutionalizing, not just doing jugaad. However, the point about equipment is not valid, falling capacity costs are the main reason telecoms are able to deliver such good service in India. (not customer support). Call drops are far lower in India than many far richer countries in the world. Some leading operators in UK & US both have much higher incidences of call drops. Instead of absolutism, the government should link the maximum charges leviable by the operator to Quality of Service, and let the operators decide how they are going to distribute their services.

Those Dropped Calls!

                                         And what could be done to fix them...

Shyam Ponappa  |  August 6, 2015


Why do we have so many dropped calls on our mobile phones? Operators say it's because of the closure and shortage of cell towers, and too little spectrum. Public opinion is conflicted, wanting better services at low prices, fearful of the hazard of more towers, while also wanting operators to pay dearly for spectrum through auctions. The government asserts there's enough spectrum and operators need only to invest and deliver. Can these be resolved to get better services?

There are several elements in this situation relating to technology, to the regulatory aspects of administration (policies and regulations), or to management aspects (structure, organisation and processes). Understanding these and managing them will be crucial in devising solutions.

First, an overview from a lay perspective. An operator runs a number of "cell towers" connected together, as well as to other operators' towers (mobile networks) and fixed networks. A cell tower in its simple form - for one operator, covering one cell/area - comprises a base transceiver station (radio), antenna (mast), and other equipment. Radios need spectrum for wireless communication between towers, and subscribers linked to towers.

Apart from spectrum and licensing costs, the number of towers in an area drives the capital and operating costs, materials and energy used, and the environmental impact. As each tower covers a number of subscribers and spectrum is used for wireless connections, more subscribers need more spectrum. So, a given set of towers provides greater traffic-carrying capacity if there is more spectrum. Conversely, less spectrum requires more towers and equipment, which means higher costs and environmental impact. In other words, for a given frequency range (spectrum band) and set of towers and subscribers, a small set of broader bands can carry more traffic than can a large set of narrower bands.1

Calls get dropped or blocked if there is too little spectrum for the number of subscribers, because the calls exceed the spectrum's carrying capacity. Users get good reception if they are near towers, but if other towers are too close, interference from signals from those towers can reduce the capacity of available spectrum, and reception may also be noisy. A weak connection with a distant tower results in poor reception. Distance cuts both ways: a short distance from tower-to-user yields a good connection (strong signal), but other towers must be far enough to avoid interference (i.e., have weak signals for the user). For 900 MHz with a mast height of 10 metres, this tradeoff results in distances between towers of under 100 metres in Delhi because of the scarcity of spectrum, compared with 200 metres in Istanbul, 300 metres in Munich, or 350 metres in Berlin.2

An additional benefit of more spectrum is that peak-hour capacity increases, so that more traffic can be carried without calls being dropped or blocked over the same network configuration. Our problem is that we have many operators with narrow, non-contiguous slivers of spectrum. This further reduces the efficiency of the available spectrum.

A reduction of towers because of closure on account of public pressure or for environmental reasons creates genuine problems, but simply adding towers is only a partial solution, as it doesn't remedy the shortage of spectrum. One reason is interference resulting in the reduced capacity of available spectrum - because cells in our urban centres are less than 100 metres apart, much less than in other countries, because sufficient commercial spectrum hasn't been made available. Therefore, more towers alone will cause spectrum to be used less efficiently, but won't reduce dropped calls arising from insufficient, fragmented spectrum. Also, adding towers is expensive, and is detrimental to the environment.

Operators deal with scarce spectrum by deploying more base stations per unit area, and also by using advanced technologies such as adaptive multi-rate codecs and synthesised frequency-hopping. In 2008, Indian operators were among the few worldwide to adopt such techniques, while having the smallest outdoor sites and heaviest traffic densities per MHz.3 This results in higher costs relative to revenues.

Contrast with China

Comparing the approaches taken by China and India, there's little doubt of the need for a change in our approach. China provided operators with low-priced spectrum to scale up and drive economic growth, among other forms of support. Despite foreign holdings, it hasn't imposed substantial fees. India brought in more operators than other markets, didn't provide as much commercial spectrum, fragmented what it had, and priced it out of sight. Consequently, substantial spectrum is idle with the government, while large operators with very little spectrum and the legacy of underdeveloped fixed networks have over 100 million customers each, with high voice and growing data usage. This situation is likely to worsen as more spectrum holdings come up for renewal.

Efficient data transmission requires even broader bands. The charts below show how capacity increases per MHz with broader bands, and the bandwidth in terms of megabits per second (Mbps) needed for services.

Capacity Increases with Broader Bands

Source: Search on Google for: "Optimising mobile broadband performance by spectrum refarming"; white paper by Nokia Networks.

http://www.slideshare.net/allabout4g/mobile-broadband-explosion-ppt-rysavysept2011

Possible solutions

One possibility is to adopt policies and regulations that facilitate spectral efficiency, e.g., allowing roaming and spectrum trading. This wouldn't mitigate the problem of excessive capital expenditure on spectrum auctions that exceeds investment in networks (according to an industry estimate), but would probably improve spectrum utilisation.

Another is to share all spectrum through pooling, allowing common-carrier access on payment to Radio Access Networks including spectrum. If charged only a reasonable revenue share with incentives such as reductions for rural services, there is likely to be explosive growth in broadband delivery with an increase in government revenue, if the organisation and coordination is done right. The government needs to bring together operators and other stakeholders, including the Ministries of Communications & Information Technology and of Information & Broadcasting, and with expert help, work out how to organise and deliver the promise of Digital India.

---

Shyam nospace Ponappa at gmail dot com

1. An assessment of spectrum management policy in India, 2008; p 10: http://www.aegis-systems.co.uk

2. For GSM, there is a 50 per cent increase in the capacity per MHz using two channels of 12 MHz each instead of two channels of 6 MHz each. Ibid., 15.

3. Ibid.,28.

China 2: Beneficial Engagement

India and China have the opportunity to develop strategic commercial interests that are mutually beneficial

Shyam Ponappa / New Delhi August 05, 2010

The opportunities and threats relating to China are an unending source of discussion and debate. How do we move beyond, to grasp the nettle of practical considerations and undertakings? What emerges is India’s need to strategise its commercial interests and execute projects in terms of clear objectives. One aspect is related to internal coordination: getting our act together, e.g., in domestic manufacturing. A second aspect has to do with external orientation, and engaging with China.
In a previous article*, I had suggested the need to orchestrate supportive policies for domestic manufacturing, to capitalise on India’s growth. The central idea: emulate China’s approach in areas where it has successfully established policies that yield scale economies with appropriate financial and commercial linkages, to result in high-quality products delivered at low cost. An instance discussed was the power sector, where China has coordinated its state and central taxes, picked favoured locations which have good infrastructure (energy, transport, communications…), subsidised land, managed favourable exchange and interest rates (i.e., cheap finance), given preferred access to its domestic markets, and deployed barriers to unfair competition, like import tariffs not below the WTO floor.

Another dimension that also needs to be explored is positive, constructive engagement with Chinese enterprises. The potential for engaging in a number of areas with the scope for mutually beneficial participation may exist. This kind of collaboration could mitigate risk by enhancing access to raw materials as well as to expanded markets for finished goods, while reducing capital investment through equity participation.

Take sectors like energy and metals. Both provide tremendous opportunities for mutual benefit. One dimension is joint bidding for projects for exploration and development in sectors such as oil and gas, instead of competing bids. (The Sudan venture doesn’t count, because India and China became partners by default, and not by conscious choice.) Another is joint participation in projects in both countries, e.g., for aluminium. China itself is guarded about FDI in strategic sectors, so such ventures will require significant efforts and accommodation from both countries.
Although more opportune several years ago, it is still possible that there is scope for an aluminium smelting joint venture in India because of the availability of bauxite, coupled with back-to-back joint ventures in India and China for finished products. The potential benefits to Indian companies such as Nalco are access to substantial capital for expansion, as well as increased access to markets. A Chinese partner like Chinalco would also gain significantly by access to its share of low-cost raw materials as well as to a more diversified market, in return providing access to Chinese and international markets to its Indian partner.

China has for years acted decisively on setting up joint ventures in its overall interests. In the early 1990s, I saw a phosphoric acid plant in Florida, where China had a 50-50 joint venture with a US company, Seminole Fertiliser Corporation. This enabled Chinese phosphoric acid imports at favourable prices, circumventing cartelised export restrictions by US producers. (China and India have been and are major importers of phosphoric acid for phosphatic fertilisers.)

More recently, Huawei’s efforts in breaking into the US telecommunications market show the same decisiveness, e.g., in hiring the former chief technologist of BT for its operations in the US. Huawei has been a leading supplier to BT. This is an instance of how China strategises its approach to be an acceptable partner.

While breakthroughs in information and communications technology (ICT) with India may be more difficult in the near term, because of mutual wariness as well as the need for complex structuring, mainstream ventures in sectors like steel, aluminium, copper and energy (oil and gas, coal) may be more easily structured and executed, provided there is mutual (a) reciprocity and (b) transparency. In this, our decision-making and delivery processes must keep up with the required pace. This major change in approach between the two countries, open reciprocity with no game-playing, and in India’s own methods, are necessary conditions for major commercial developments that lead to optimal economic engagement.

One difficult aspect is the inevitability of dealing with China’s state agencies for core projects, often affiliated with the PLA. However, it is a reality that has to be included in the final solution, just as major energy ventures that India participates in are likely to be driven by state-owned enterprises like ONGC, Indian Oil Corporation, or GAIL.

A possible way to achieve a first step may be to structure a venture that is in a third country, with substantive contributions from both India and China, with benefits to all three. An example could have been (could be?) a very large copper and gold mining project in Mongolia, close to the Chinese border. The Oyu Tolgoi (“Turquoise Mountain”) project is currently being developed by Ivanhoe Mines, a Canadian company, and Rio Tinto, the mining giant in which Chinalco is the largest shareholder, with the Mongolian government as the third partner (for details, see http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=107827&sn=Detail, and http://www.ft.com/cms/s/0/ b2065990-8ddf-11df-9153-00144feab49a.html ). The two external shareholders reportedly have differences about Rio Tinto’s enhanced acquisition of Ivanhoe and thereby of Oyu Tolgoi. A possible solution, provided India perceives this as beneficial (as must Mongolia, Ivanhoe and Rio Tinto) and Delhi acts decisively, may be the induction of Indian equity into this project.

This can only happen if there is a national initiative to evaluate and act on the opportunity, with a concerted bid in a manner that all parties — the Mongolian government, Ivanhoe Mines, Rio Tinto, and the Indian government — can have a meeting of minds on valuation and direction, with an open, collaborative approach.
Other potential areas for participative ventures could include logistics and transportation, including airlines and freight/shipping. While the possibilities are open-ended, the actual unfolding of promising pathways may require success with simpler “asset-plays” like metals or energy projects, to establish what is pragmatic and feasible. These could provide substance to what is currently just talk of a strategic partnership with China.

shyamponappa@gmail.com

*http://organizing-india.blogspot.com/2010/05/china-club-instead-of-bombay-club.html

China Club instead of Bombay Club?

Emulate China's coordinated policies for strategic sectors, and we'll rely less on commodity exports

Shyam Ponappa / New Delhi May 6, 2010

With the momentum of the past few years, India’s potential for growth is enormous, despite the chaotic loose linkages. In sectors like power and telecommunications, this translates to demand far outstripping capacity. Some contend that domestic inability to build capacity — i.e., being able to actually pull it off, as against the perpetual potential — will conscribe not only these sectors, but also limit overall growth. So the argument goes, e.g., let China build India’s power plants, because we need the power and don’t have capacity/they do it cheaper.

Comparative advantage notwithstanding, this reasoning is fallacious given the realities of national interests and self-interest. To understand why, consider the naïveté of the underlying assumptions — about “rational man”, that capitalism is fair, capital is immobile, surplus value accrues to countries and not to companies, or that the pursuit of self-interest maximises societal benefits.*

Our quandary is aggravated by our inability so far to orchestrate supportive policies for even a level playing field. Ironically, one need only consider India’s approach to IT and IT-enabled services (ITeS) in the initial growth years to realise this. India’s policies in IT and ITeS, while far from perfect — in fact, sneaked through by stealth, as in the preferential 64 kbps communications lifeline, and the tax breaks for software service exporters — provided the foundations for transforming IT and then ITeS/BPO/KPO (Business Process and Knowledge Process Outsourcing).

These sectors also benefited from a controlled exchange rate, as the Reserve Bank of India (RBI) managed a steady depreciation during those years. But they did not have another vital ingredient of coordinated policies as did the Asian tigers: low borrowing rates (see diagram below for real interest rates in China, USA and India, 2002-2004).

http://thinkglobal.com.au/docs/ChinaMembers/China_and_Indias_Financial_Systems_-_a_barrier_to_growth.pdf

This is one reason why, for instance, India’s machine tool manufacturers or shipbuilders have not matched the growth of knowledge-based services. The former need inexpensive, long-term capital for production and marketing, as well as for continuous innovation, upgrade and scale.**

Why labour arbitrage and not products

This is also one reason why we lack product orientation, because product design, development and marketing require the support of easy access to cheap capital for a long period. Labour arbitrage needs little capital. Therefore, we have been better mercenaries than producers of products, compared with the chaebols (Samsung, Hyundai) or keiretsu (Mitsubishi, Dai-Ichi/Mizuho). There are, of course, many additional reasons: their education, training, work practices, our policies against large corporations, etc.

With growth in domestic markets across a broad range — telecom equipment, engineering goods, power — there are domestic manufacturing initiatives, such as L&T and Bharat Forge in power generation joining Bhel, or Tejas Networks in optical switching. But for the transformational changes we have witnessed in IT, we need coordinated industrial policies that support domestic manufacturing, because that’s the competition. Unthinking acceptance of “open markets” without heed to how others — including developed economies — cosseted and built their manufacturing capacity will ensure that India stays a raw materials and commodities exporter, while importing trains, aircraft, machine tools, and equipment for power generation, telecommunications and defence.

Integrated policies work

Ideally, supportive policies comprise a coordinated range, such as state and central taxes, favoured locations with good infrastructure — energy, transport and communications, subsidised land, favourable exchange and interest rates, preferred access to domestic markets, and barriers to unfair competition, like import tariffs not below the WTO floor, and safeguard duties. Without this orchestration, the victors are companies and countries that have understood these principles, and have these systems in place. (This applies equally to farm products.)

Many are apprehensive that what works elsewhere will not work in India because of malpractices, as seen in recurring scams. There is every need for systems with integrity, and for enforcement with penalties. But just as corruption in government or civil society does not do away with the need for either, misuse does not negate the need for incentives. It would be self-damaging to lose the opportunity to try and get our act together simply because of apprehensions of corruption and/or incompetence. That would be like not subsidising food for the poor; it’s a different matter that we need better methods to prevent gross misappropriation.

The consequence of heedless, ad hoc muddling through instead of orchestrated strategies is that manufactured imports will dominate our markets, while domestic manufacturing is fragmented, hamstrung or absent. Having said that, consider India’s needs in electricity or communications — telecom, Internet and broadcasting — and it is apparent that crafting policies is not simple. So many conflicting images, some based on facts, others, mere impressions, which are often more important than facts. What should policy-makers do for our needs on such a massive scale with growing shortfalls?

Emulate China

The short answer: learn from China. In the power sector, Chinese suppliers have the following advantages:

• Low-cost access to capital.
• An exchange rate advantage (10-30 per cent).
• No sales tax and octroi, aggregating to about 11 per cent.
• Zero customs duty on equipment for large plants (China imposes a 30 per cent import duty).

Corrective action discussed for years has not resulted in concrete steps. The power ministry, citing supposed user benefits, opposes the planning commission’s recommendation of a safeguard duty. This is as shortsighted as “free electricity” that undercuts investments in power.

In telecommunications, consider Huawei, with revenues of over $20 billion, nurtured for 20 years with the People’s Liberation Army (PLA) as an R&D partner and guaranteed customer, vis-à-vis, say, Tejas Networks from Bangalore, with no government support.

Our policies need to focus on our long-term interests with strategic intent and execution, as in other countries, balancing costs with the benefits of domestic capabilities. These sectors need government procurement support, not criteria that disqualify Indian companies in strategic sectors like power and communications. They also need interim methods for Chinese companies to contribute while upgrading our skills and processes. Our aim needs to be a level playing field.

shyamponappa@gmail.com

* For why “individual ambition serves the common good” doesn’t quite work, see “Prisoner’s Dilemma” at: http://www.lsd.ic.unicamp.br/~oliva/papers/free-software/BMind.pdf

** “An Analysis on the Determinants of Indian Machine Tool Exports”, Rijesh Raju, 2007: http://www.wu.ac.at/europainstitut/noeg/raju_s2.3-2