What are the key reforms needed in the Indian Telecom sector?

Recently the government has announced that it will soon come out with a new telecom policy. In my view, the proposed policy must be driven by the following objectives, a) To remove all regulatory bottlenecks in expanding broadband connectivity to the remotest part of the country by using all available means; b) To encourage efficient usage of bottleneck resources like spectrum and right of way etc.; c) To ensure that these bottleneck resources (spectrum, ROW etc) are available at an optimal price; d)To make "use of internet" easy, secure, affordable and remunerative for the consumers; e) To promote deployment of next generation technologies like 5G etc.; f) To promote local manufacturing to drive feature rich "optimally priced" device. In this note, I attempt to list some of the key reforms needed to fulfill some of the above objectives.

Abolish License Fee

The license fees in its current form (% of revenues) should be abolished, as it discourages operators to share resources and to partner with MVNOs (Mobile Virtual Network Operator). This is due to the fact that the current licensing framework leads to a situation of "double taxation" by not allowing an operator to deduct the license fee already paid by its partner operator on the same revenue stream. For example, let's say an MVNO collects Rs 100/- from the consumer. He pays Rs 8/- (8% of 100) as license fees. The value that he contributes is Rs 10/-. Hence, it passes the remaining amount (Rs 90/-) to its partner operator. The partner operator has to pay Rs 7.2/- (8% of 90) as license fees. Therefore, the total license fees paid by both together on Rs 100/- is Rs 15.2 (15% of revenue). For more details see my earlier notes - "What is the basic problem with revenue share?" and "How Effective are the VNO Guidelines? In fact, not charging license fees from the operators will also mitigate the operator's concerns about "light touch licensing" - a license with no revenue share, like a small WiFi operator etc. Moreover the logic of dismantling license fees % of revenue also stands due to the fact that the access to a license no longer guarantees access to any spectrum, as it used to be in past (6.2 MHz for GSM, and 5 MHz for CDMA), and therefore the "license" has been just reduced to a paper document. However, push back on account revenue loss to the exchequer can be managed innovatively. The column by Mahesh Uppal "Breaking the telecom logjam" provides some interesting insights to this effect.

Create a Spectrum Website

Getting information about commercial spectrum is hard, more so when the operational rearrangement of frequencies is done after the initial assignment. This leads to a lot of confusion and inefficiencies. Hence, all spectrum data (commercial in nature) should be uploaded on a website. Also, this information must also be updated on a regular basis. Doing so will help the operators plan their operations well, and will help the government to harmonization and optimize spectrum resources for increased efficiencies and better management.

Increase Focus on "Sustainable Development Goals"

Till date, the design of all auctions has been influenced by the need to maximize revenue. This has led to distorted prices of spectrum driven by forced bidding. Why? As there were no incentives for a bidder to stay out as even a small bid by an over enthusiastic player was being considered as "market price". Prices were reduced only when no bids were received. Resulting in no correlation between "price of spectrum" with the "revenue potential" of the circle. Please refer to my earlier note - "What is wrong with spectrum prices?" Hence, the forthcoming policy must focus on "Sustainable Development Goals" than just on "Maximizing Revenues". All bottleneck resources including spectrum should be priced keeping this objective in mind.

Release More Spectrum in the "Lower Frequency Bands"

This will enable the operators to roll out VoLTE, and thereby effectively compete with those already providing unlimited voice. For VoLTE to work effectively one needs to have LTE spectrum in the lower spectrum bands. See my earlier note - "How "Unlimited Voice" Impact Indian Operators". In this regard, spectrum in the 900 MHz band needs to be harmonized. See my earlier note - "Harmonizing 900 MHz Band". This can help alleviate the problems of the operators in the short term. In the medium and long term, 700 and Sub 700 MHz band will help in meeting the operator's requirements. See my earlier note in this regard - "Harmonizing Sub 700 MHz Band". The lower spectrum bands will also enable the operators to create a vibrant network to support network based IOT - enhancing their depleting revenue stream.

Release Unlicensed Spectrum in the "Higher Frequency Bands"

Currently, we have two spectrum bands (2.4 GHz & 5 GHz) reserved for unlicensed operations. This means that a user does not have to go through the complicated process of seeking approvals to radiating in these bands. The total quantum of spectrum available for use at a time available is only 20/40 MHz, though a total 200/400 MHz is assigned. As most of it gets consumed for managing interference. See my earlier note for more clarity - "Spectrum Management for Dummies". To drive higher data rates and for backhauling traffic from the WiFi hotspots, more spectrum is required. 60 GHz band is an excellent choice for this purpose. Other countries have opened it up for unlicensed operations, as it easy to manage interference in this band (compared to other bands) - radio signals traveling in this bands gets naturally attenuated by the oxygen molecule's interaction with it. Opening up this band for unlicensed operations can greatly increase the opportunity of deploying WiFi hotspots in the country, which is currently constrained due to the need for costly fiber-based backhaul even for carrying traffic to small distances.

Promote Local Manufacturing

India has already become a manufacturing hub for smartphones. To most Indians, they (smartphones) are the only means of accessing broadband. Hence, these devices need to be affordable. India has the best talent at the cheapest cost. We have to leverage this to our advantage. This we can do only when "Local Manufacturing" of smartphones is incentivized. The manufacturing of smartphones should not be just limited to "assembly", but the manufacturers should be motivated to add more value. Focus on local manufacturing will trigger more investments in R&D, and help fine tune the technology/devices for India specific needs.

This note is not meant to be an exhaustive list of reforms needed on the ground. The idea is to highlight some of the most important ones so that these can act as anchors for others.

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