Optimise Utilisation Not Revenue

The Indian telecom regulator needs to stop worrying about maximizing auction revenues and focus on telecom sector consolidation

At the beginning of World War I, the first thing the warring nations did was dredge up the undersea cables that connected Europe to America and cut them. A world that had just become used to instant communication across the ocean was suddenly plunged into silence. With no other mode of communication across the Atlantic available, armies on both sides of the Atlantic were forced to turn to the still unproven (over long distances) wireless communication technology.

It soon became evident, however, that even though the technology existed, different private companies (the Marconi Company, AT&T and General Electric to name a few) controlled important patents over various critical elements of the technology. As a result, no single company was able to build a state-of-the-art telecommunications system without the risk of being sued by the others. The patent system that had been designed to promote innovation had forced the wireless industry into stagnation.

In what will go down in history as the first instance of government intervention in the wireless telecommunications industry, the US government invoked its wartime powers and suspended all patent rights, allowing American inventors to use whatever technologies they needed to build viable long-range communication technology. As a result, radio technology was widely used during World War I — both for communication as well as to triangulate enemy warship movements using radio signals.

After the war ended, the government encouraged the various private entities that controlled patents over disparate parts of wireless technology to create a patent pool so that all patents could be held by a single company — the Radio Corporation of America (RCA).

RCA pioneered the use of radio frequencies in the broadcast entertainment industry and soon radio stations mushroomed all over the country. They began to camp on various parts of the spectrum for their programming and, since there was no spectrum regulator in those days, the programming of one radio station would interfere with others that were using adjacent frequencies.

This resulted in the infamous “interference hours” during evening prime time when radios in living rooms across America would emit nothing but howls and shrieks. Yet again, the government intervened by establishing the Federal Radio Commission whose principal purpose was to allocate frequencies with sufficient buffers between to avoid interference.

The primary responsibility of a communications regulator has to be to encourage telecom companies to utilize spectrum more efficiently and allocate bands of spectrum among these companies and technologies in a manner that results in their optimal utilization.

Private enterprise will innovate — both with technology as well as with their business models. The government’s role should be limited to ensuring that the scarce spectrum resources on which these businesses depend are optimally allocated for effective utilization.

Yet, the priorities of the Indian department of telecom have, in the past few years, been somewhat different.

When the spectrum auction ended last week, just 41% of the total 2,354 MHz of spectrum on offer had been bought and the government received just over 10% of the Rs5.66 trillion that it expected to earn. The communications minister tried to put on a brave face by claiming that this was the highest amount earned in auction in the last five years, but it is clear that the price was too high.

This anxiety to squeeze as much revenue as possible out of a spectrum auction can be traced to the judgment of the Supreme Court in the 2G case, where, in striking down the first-come-first-served policy, the court suggested that auction was a fairer process. Had it been adopted, the court observed, in passing, the nation would have been enriched by many thousand crores. Nowhere in the judgment did the court actually require the government to use auctions to maximize revenue. But nevertheless, that is what the government has been hell-bent on doing in all subsequent spectrum allocations.

Unfortunately, this revenue maximization policy has come at a high cost. India, currently, has more mobile telecom operators than any other country in the world. While Europe is shrinking from 4 to 3 (and in some cases 3 to 2) telecom operators, India, with the launch of Jio, has grown to 11.

Indian telcos that are currently struggling to keep their head above water in a highly competitive market need to deploy the meagre spectrum they have with high efficiency to remain competitive in a country with the lowest tariffs in the world. The burden of carrying a huge subscriber base in these trying circumstances has resulted in network congestion that has made mobile communication in India a nightmare.

More spectrum is the need of the hour, but at the current reserve prices, the cost is clearly too high. It’s high time the government switched its focus to encouraging consolidation.

This article was first published in The Mint under a column called Ex Machina on the interface between law and technology.