Save telecom with a reprise of NTP-99
Radical steps are needed to fix the telecom crisis
The article was originally published in Business Standard on January 1, 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 p
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 p
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.
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.
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.
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.
- 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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