Could high spectrum pricing frustrate Digital India’s march?

by | Dec 16, 2014

Four months have elapsed since the Digital India program was first announced by the Prime Minister but few follow-up developments have taken place. Is it time to complain? I don’t think so, as the government is a gigantic machine and needs a long start-up time for anything new and big that needs to be operationalized and executed.

Having said so, an onus is on various ministries and departments that are core parts of the Digital India umbrella, to align their acts along the essential objectives and visions of the program. In particular, the telecom bodies—including the regulator and the licensor—do need to lead from the front.

Why? And how?

Well, for the Digital India program to be meaningful in the first place, its benefits must reach the citizens in a ubiquitous and seamless manner. That is possible only if access to mobile broadband is affordable to all. Oh yes, the access networks already have sufficient footprints across the country to give government-to-citizen (G2C) programs a jumpstart.
Plus, the device ecosystem has been supportive. Prices of smartphones have been falling continuously even while their feature sets have been improving. Mobile data prices too have fallen significantly in the last three years or so, but mostly as an industry’s measure to push demand and not driven by economies of scale. High spectrum prices have effectively edged the smaller players out of the fray and even forced the larger ones to go slow with their mobile broadband network investments. (We have already seen exits and truncated operations from many a telco in the past few years as well as frequent non-participations in the spectrum auctions by various players.)
The auctions, which were brought in to promote healthy competition in the market, and which in turn should have served the primary goal of pushing the tele-density up, have somewhere along the way become mere instruments of funding the government exchequers. The agencies seem to have forgotten the fact that a smaller number of players, often with reduced scales of operations, aggregate smaller amounts of revenues on which government can levy taxes. Also, the industry now employs a smaller number of professionals, which in turn further lowers the sector’s contribution to the economy.
The developments have together contributed towards a slowed pace of tele-density growth, which has long been known to have an adverse impact on economic growth (in fact, it even passed through a phase of de-growth, though not necessarily due to an impact of spectrum pricing alone).
It may not be wrong to say that in the last few years, the government agencies lost sight of their larger and long-term purposes and instead started focusing on the narrowed and shorter-term goals of commercial realization, sacrificing along the way at least a few of the telecom hens that laid the golden eggs.

Big picture again!

Sure, there would be justifications for the course that was taken, but thankfully, there is a new justification in place now to reverse that—the Digital India program. Department of Telecom (DoT) for one may could work to ensure that the sector plays its much needed role of a Digital-India enabler.
Not only there is a need to rationalize the reserve prices down but also important to increase the supply of spectrum blocks during an auction so that bids are not force-driven by an artificial supply crunch. Even if the debt-ridden telcos are not passing on the cost of spectrum straight to the consumers, they are nevertheless slowing the pace of their network expansions. By rationalizing the spectrum supply and reserve pricing, DoT could help drive the industry’s mobile broadband investments northwards, which in turn would make broadband access more ubiquitous.
That 4G is a far more spectrum efficient technology is a well-acknowledged fact. However, 4G rollouts may be described as having moved at a snail’s pace in the four years since telcos acquired the broadband wireless access (BWA) spectrum. Even though the slow progress on the device ecosystem front may partly be blamed, a host of spectrum woes have added to the misery. Inadequate supply of pan-India contiguous spectrum and uncertainties around the various blocks have also led the industry to plan around their spectrum resources less strategically. A longer-than-expected return on 3G investments has further impacted the investments into 4G LTE networks.
Today, there are barely a few hundred thousand 4G subscribers in India, with monthly subscriber additions being at best on scales of thousands. By comparison, China, which like India has mostly taken the TD-LTE route to 4G and has allocated spectrum blocks in frequencies including 2300 MHz, has been adding LTE subscribers at an exponential pace. For example, China Mobile alone has reportedly grown from 1.3 million LTE users in February 2014 to 20.4 million in July and over 40 million by end of September.
China Mobile had earlier obtained 130MHz of spectrum in the frequencies of 1880-1900 MHz, 2320-2370 MHz and 2575-2635 MHz, while rivals China Unicom obtained 40MHz in 2300-2320 MHz and 2555-2575 MHz frequencies and China Telecom secured 40MHz spectrum in 2370-2390 MHz and 2635-2655 MHz. All these have been incumbents providing 3G services already.
By comparison, no incumbent player in India has had pan-India BWA spectrum. Only one greenfield player had been allocated 20 MHz of pan-India BWA spectrum in the 2300 MHz frequency. That China doesn’t charge the telcos for the spectrum is another matter altogether.

What India can do?

The facts about China are not to suggest that India should also do what China has done. No, there’s no point emulating another country—our challenges, resources and market models are different and so should be our approaches and solutions. However, we do need to look back and see if there are any lessons to be learnt.
It would be pertinent to recall that at one point in time, India could boast of the lowest mobile voice tariff in the world, which is no longer the case. Also, mobile subscriber growth in India once surpassed that of China. No more. On the contrary, the picture on the 3G and 4G front is very pale when compared to China and there are no signs of that becoming rosy in a near future.
What went wrong? Why and where?
While we would agree that it would be absurd to copy a China, somewhere in the past we did decide to emulate some other countries that had applied the spectrum auction model. Funny that we did so, given that 3G spectrum auctions in Europe had been known to pull an entire industry there into doldrums, from which it took several years to recover. Not surprisingly, telecom industry in India has suffered a similar fate.
The citizen centricity embedded in the Digital India program has the potential to lift up the industry to a sunrise level again, where it becomes a leading enabler of the program itself. With 3G smartphone prices handsets already available at sub-USD50 levels and with 4G handsets expected to fall at under USD100 levels as early as 2015, the mobile ecosystem is already providing a threshold for massification. A positive and favourable development on the spectrum pricing front is a much needed missing link!
The article was first published in GovernanceNOW.