Telecom Sector - The List of Urgent Reforms

As the new government takes charge, I thought that it will be a good idea to list the much-needed reforms needed in the telecom sector.

Prevent Double Taxation

Currently, license and spectrum fees are charged @ of percentage of AGR (adjusted gross revenue) which is approximately between 11 to 12 %. The revenue share regime emanated at the time when the spectrum was granted administratively. And now with auctions, this has totally lost relevance. In past, I had analysed this issue in my article titled "License Fees @ % of Operator Revenues Should Go, But Why?" But dismantling it totally might be difficult as the same may not acceptable to the finance department. Hence, something incrementable might be easy to execute - like allowing cost deductions on similar lines that was permitted to the VNOs with an aim to avoid double taxation. See my note titled - How to make sharing of infrastructure more attractive? Facilitating the sharing of infrastructure is must when the telecom sector will need a significant amount of investments to roll out upcoming technologies like 5G. Note that the key reason why tower sharing in India is a success because the IP1 licensees (running tower companies) do not have to pay license fees, and thus avoiding double taxation.

Rationalise Spectrum Price

Indian spectrum prices are extremely high (See - link). They urgently need rationalization. With both competition and industry revenues decreased significantly, the TRAI urgently needs to revise spectrum prices. At the current RP and operator will need to spend Rs 65,680 Cr ($ 9.38 billion) for 10 MHz spectrum in the 700 MHz band, and Rs 49,200 Cr ($ 7 billion USD) for 100 MHz in the 3500 MHz band (optimal spectrum for 5G). In this market (with industry revenues dropping), who has the appetite to spend such amounts? No one. That too when the industry has accumulated huge debt (deferred payment obligation) and is sitting on a large amount of unused spectrum - the whole 2.5 GHz band and a large fraction of 2.1 GHz band is lying fallow - almost 3 years after the auctions. Those who want to defend the current pricing come out with their own logic and rationality, like international reference, and past auction value. My take is that this is like comparing apples to oranges, as all market situations and auction design are different - making this comparison meaningless. Hence, TRAI has to do "ground up" valuation of spectrum each time by mapping it to the existing market realities (Please refer to my earlier note -TRAI's Spectrum Pricing Model: It is biased towards last bid value?). Otherwise, the adoptions of new technology will slow down, thereby driving India backwards compared to the rest of the world.

Free Up 5G Spectrum Bands

In India, 5G will get deployed in the 700 MHz, 3.5 GHz and 26 & 28 GHz band. DoT needs to ensure that these bands are free for assignment to the operators.

For example, in the 700 MHz already 2x10 MHz has been given to the defence (out of total 2x45 MHz). Now the railway is demanding 2x10 MHz. Assuming that BSNL/MTNL will also be given 2x10 MHz, the industry will be left with only 2x15 MHz!!!

In 3.5 GHz, till now 300 MHz of spectrum is available. Out of which 25 MHz has been taken by the Department of Space (See my note - "Earth" Flat or Round?). GoI needs to ensure no further spectrum is released to any other department in this band, as the total 275 MHz is grossly insufficient for 5G.

In 26 & 28 GHz band, the DoS is claiming the total available. See my note titled - "Spectrum Turf War". With no spectrum available in this band, India will get severely compromised in its ability to deploy and leverage 5G capabilities.

Assign Spectrum in E band

Airwaves in the E band, which falls between 71-76 GHz and 81-86 GHz. This has a total 2x5 GHz of spectrum. The spectrum in this band can be very useful to backhaul traffic from base station sites, as the current microwave links will fall terribly short in capacity when 5G gets rolled out. Also, it will difficult to connect all the BTSs with OFC. This traffic once backhauled will then get aggregated in the Metro and Core OFC rings for further carriage and processing.

Facilitate 5G trials

We have been talking about trialling 5G technology for a long time, but yet no spectrum has been granted. The matter is still being debated in DoT. Unless spectrum is granted 5G will not take off in India.

Improving Spectrum Auction Design

There is an urgent need to improve the spectrum auction design. A) Increase the block size of 20 MHz in the 3.5 GHz band to 50 MHz or 80 MHz. This will prevent the complexity of harmonization and roll out of 5G. B) Hold Pan - India auctions that circle by circle. These issues have been explained by me in my earlier note titled - "Managing 5G Spectrum".

Facilitate Right of Way

5G cannot work without the support of the underline OFC networks since the traffic that is likely to grow multiple times that of 4G. Hence, new OFC has to be laid. For that, the operator will need the Right of Way. The foundation for this was laid in 15th Nov 2016 with the notification of RoW rules. These rules had clear guidelines both for the local bodies and the licensees regarding RoW permissions. Also, as per clause 14 (2) of the rules, the central government (within 60 days of the notification) was to designate officers for the purpose of dispute resolution between local bodies and the licensees seeking permission. But due to some strange reason, the cut-off date of "60 days" was withdrawn in 21st April 2017 via another notification. With no effective mechanism for resolving disputes (including levy of penalties on erring local bodies), the rules virtually stand defunct. Then on 22nd May 2018, the IP1 licensees were also brought under the same RoW rules. With local bodies under the control of the state government, the central government ability to facilitate RoW permissions looks very challenging. Hence, in the current form, the RoW rules lack teeth. Therefore, either the rules need strengthening (with the proper cut of dates and penalties) or, some kind of effective coordination mechanism needs to be developed to facilitate seamless RoW to the operators.

Enhance Active Infra Sharing Rules

Active Infrastructure sharing was allowed on 11th Feb 2016 by DoT amending the UL license clause 33.2 in Charter V part I. The sharing included the Radio Access Network (RAN) as well. But the rules do not allow the operators to fully leverage their capabilities. For example, let's say Bharti was to leverage it RAN equipment to light up Vodafone-Idea's spectrum in the 2.5 GHz band, it will hit a roadblock, why? As WPC won't allow it to import equipment with that capability as Bharti does have spectrum in the 2.5 GHz band. Hence in the current market dynamics (with many spectrum bands), it will be difficult to assume that all the players will have spectrum in all the bands for them able to fully leverage this clause. For example, RJIO has spectrum in 800 MHz, and others don't. Vodafone-Idea has spectrum in 2.5 GHz band others don't. Bharti has spectrum in 900 MHz in 14 of the 22 circles, and Vodafone-Idea has in 16 circles. Therefore, the DoT has to relax the rules to accommodate the operator's ability to share Infrastructure flexibility without bottlenecks.

Define Specialized Services

On 26th Sept 2018, DOT had issued an amendment to the Unified License to allow an operator to circumvent "Net Neutrality" rules when they offer specialized services provided such services are not detrimental to the overall internet experience of the consumers. But DoT has not provided any explanation on the kind of services that fall under this category. With the advent of 5G, the network capacity will increase exponentially, and if the operators cannot leverage their network flexibly (of course without hampering public internet experience), then they will not be motivated to make that investment. Hence, the DoT should allow a more flexible definition on "Specialized Services", by allowing all services under this category, provided the user experience on public internet does not degrade. Please read my note titled - "Can Operators Use 5G for Broadcasting TV Channels?"

Promote Local Manufacturing

The foundation of local manufacturing in India is laid on raised increasing custom duties on mobile phones and its components. But looks like it will difficult going forward and many countries have taken India to international courts over this issue. Like Japan, EU etc. I had predicted this outcome long back. Please read my note titled - "India & ITA", wherein I had mentioned that If India chooses to opt for the former (raise basic customs duty), then it has to justify to the WTO members sometimes in future as to why it is not in direct violation of its ITA commitments. Also, bilateral FTA (Free Trade Agreement) that India has with some countries makes these duties defunct. Therefore, in order for India to continue to attract local manufacturing of IT products they need to improve the cost structure compared to other markets. Else these companies (currently manufacturing in India) will simply disappear, as there will be no incentive for them to manufacture in India.

Conclusion

Fortunately, National Digital Communications Policy was notified on 22nd Oct 2018. The policy has all the hooks for driving these reforms. And I am sure that this will be in the topmost list of actions for the new government.

(Views expressed are of my own and do not reflect that of my employer)

PS: Find the list of other relevant articles in the embedded link.