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.

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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.

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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.