A New Telecom Policy That Works

First published in the Business Standard on August 2 and mirrored on Organizing India Blogspot on August 3, 2017.

The government finally announced in July that a new telecom policy (NTP-2018) in consultation with stakeholders would be in place by March 2018.  There’s been some jockeying for one-up statements thereafter, suggesting the risk of being sidetracked. The need for competent, supportive policies in the public interest must be focussed and driven, and not be allowed to fall prey to being hijacked by bluster, nor be diverted towards maximising government revenues, crony interests, or electioneering tub-thumping.

A quick review of the sector and potential demand indicates what’s needed to fulfil our requirements. Telecom operators are saddled with Rs 4.6 lakh crore of high-interest debt. This has resulted from aggressive bids spurred on by spectrum auctions, aggravated by shrinking revenues and price wars. Meanwhile, urgent concurrent needs for network investment for greater reach and delivery, and for realising more of the potential for extensive and intensive usage, languish — for want of capital, enabling policies, and orderly markets. This has resulted in a crisis in what could have become the most successful communications market in the world. Instead, India’s communications sector is partly on the brink of collapse because of retrogressive policies and practices, unsustainable financial models, the fallout of scandal, and disruptive competition.

The best way forward is for all government agencies, not just the Department of Telecommunications, to define objectives jointly, and devise policies through consultations to enable an effective and robust sector. Here are suggestions for what to aim for and what to avoid in developing NTP-2018.

Objectives for NTP-2018

1. Networks: maximise capacity utilisation/throughput

Maximise the utilisation of networks by increasing throughput. This requires exploring alternative forms of organisation and management to exploit invested capital for public interest objectives, e.g., through consortiums, perhaps with government participation to ensure national security and the common good.  Orderly markets are essential in communications (as in all infrastructure), and competition, while essential, is not constructive beyond a point, unlike in fast-moving consumer goods or non-capital intensive sectors.

2. Spectrum allocation and management: Maximise throughput

Maximise wireless throughput to facilitate connectivity, by: a) Making more spectrum available, (b) In large, contiguous bands, (c) At less cost. Explore pooled usage and secondary sharing of spectrum by operators/consortiums as appropriate (consult with operators and experts).

3. Financial approach: Use revenue sharing

Use revenue sharing to compensate for spectrum and network rights, usage, and all government charges, as was done with licence fees in NTP-99.

Pitfalls to avoid

1. Palliative “default solutions”

It is easier to tinker with policies as they are than to undertake major systemic change. An easy way out would be to fall back on the received wisdom of competition and free markets, hoping to muddle through. For instance, the government set up an inter-ministerial group (IMG) to reduce financial stress in telecom. This group has apparently recommended extending payment schedules from 10 to 16 years, and cutting interest rates from 12 to 8 per cent.1 These sops could become the basis of NTP-2018, leaving the market to shake out, hoping consolidation will remedy inadequate coverage and delivery.2 This will merely reschedule operators’ payments over a longer period. The structural problems will remain, with insufficient network coverage, barriers to technology, less likely benefits from innovation such as “wireless fibre” and small cells with lower radiation, with hyper-competitiveness still a drag.

2.  Rely on consultations and avoid preconceived ideas

Statements such as that NTP-2018 will be app-directed and not connectivity-directed appear inappropriate or misinformed. This is because connectivity remains our most critical need for more effective delivery of services. Connectivity is deficient not only in rural and semi-urban areas, but even in dense urban areas. In fact, ignoring connectivity is typical of India’s approach to and failure in building networks and infrastructure (incomplete systems because of gaps, or with stranded assets, or that fail in end-to-end delivery). Simply put, our requirement is for more user-access and backhaul/networks to enable higher, more widely available access and throughput. This is India’s communications infrastructure need, whether it is broadband or Narrow Band Internet of Things (NB-IoT). Everything else follows.  Otherwise, it’s like trying to deliver more water without a network of pipelines, or more electricity without adequate distribution networks.

3. Anti-competitive disruption

While disruption is a reality in our communications sector, its jurisdiction has become contentious between the Competition Commission of India (CCI) and the Telecom Regulatory Authority of India (TRAI). The CCI reportedly asserted that the Competition Act of 2002 defines “predatory price”, “dominant position”, and “relevant markets”, which fall in its domain, and that it has applied this framework over the last eight years across sectors including telecom.3

Turf issues are not unique to India, and have been resolved in many countries.  Secretary General Pradeep Mehta of Consumer Unity & Trust Society (CUTS) points out that in 2011, a committee recommended amending the Competition Act to include mandatory consultation between the CCI and sector regulators where necessary.

A puzzling question if the telecom sector was in fact being monitored: Why was such disruption permitted? From press reports, it’s unclear whether there are no appropriate regulations, or whether the CCI’s and/or TRAI’s assessments of dominance and predatory pricing rely on precedents from developed economies without appropriate changes for our circumstances. To illustrate, consider the notion that market share is a key criterion for dominance, or Significant Market Power (European Commission).  However, in a developing economy, a large conglomerate investing in a new sector could have SMP even with zero market share, simply because of its size and resources, and economic power (attributes in Section 19(4) of The Competition Act). The European Commission also mentions privileged access to financial resources, economies of scale and scope, and barriers to entry. 

A sound NTP-2018 requires sustainable and integrated end-to-end policies for our realities, not academic or silo-based orthodoxies.

Shyam (no space) Ponappa at gmail dot com
1: “Govt panel for sops to ease financial stress in telecom sector”, BS, July 25, 2017: http://www.business-standard.com/article/economy-policy/img-readies-sops-to-ease-telecom-stress-117072401632_1.html
2: “Short-term turbulence”, BS, July 29, 2017: http://www.business-standard.com/article/economy-policy/short-term-turbulence-in-telecom-sector-117072900022_1.html
3. "CCI tells Trai to consult it on predatory pricing, market dominance issues", BS, July 28, 2017:  http://www.business-standard.com/article/companies/pricing-market-dominance-its-remit-cci-tells-trai-117072800069_1.html