After 50 years of government effort and huge spending of taxpayers’ money, we reached a national teledensity of 2% and a rural teledensity of almost nil in 1997. Reforms and the induction of private telecom firms brought change, but a very high entry fee charged for spectrum, or airwaves, through an auction for mobile phone service providers led to artificially high tariffs and crimped growth. The government replaced the entry fee with a revenue-sharing arrangement, leading to controversies and litigation. But growth started picking up and we reached a teledensity of 4% in fixed-line and 1% in mobile phone services in 2003. The tariffs were still high and regulations restrictive.
The reduction of revenue share, introduction of very low interconnect charges, a technology-agnostic unified access licence, less restrictive regulation, reduction of cross-subsidies in the network from 30% to zero, and facilitating the entry of mobile firms into rural areas through the Universal Service Obligation Fund and setting up telecom towers in the countryside transformed the market. Today, we have a national teledensity around 40% and rural teledensity of 15% against government targets of 15% and 4%, respectively, for 2010. Subsidies in the rural networks have declined and services improved dramatically because of competition.
The private sector made up 10% of the telecom network in 2003. Today, it is 80%. The public sector, however, has grown, and faster than earlier. Most of the investment comes from private companies. Yet, we have very low tariffs.
From the mid-1980s to the mid-1990s, we debated whether mobile technology was right for poor Indians, while other countries moved forward. Perhaps the debate was justified because taxpayers had to invest in mobile networks. Almost the entire world has moved to much more efficient 3G networks today while we have been debating it for the last five years although most of the investment will now come from the private sector. Fortunately, decisions have now been taken but we are on our way to committing the same mistakes we did before inducting 2G networks.
We must look at our new network model. Most countries in South-East Asia awarded spectrum to phone companies without auctions and at a low entry fee. The West had big problems due to auctions, leading to a huge entry fee. But these countries could afford the resultant high tariffs. Can we? If there were limited telecom firms, we could have given spectrum free to all, leading to very low telephone and broadband tariffs. After all, telecom and broadband networks are overseen by regulation and competition and no operator could have cornered huge profits. But we have a very large number of operators and must auction spectrum. But at issue is the design of the auction, which must lead to a low entry fee. Many countries have done it through controlled auctions, where the ceiling tariffs or method of fixing ceiling tariffs for the next decade for voice and broadband are clearly stated by the regulator/government. We have, instead, entered into a competitive regime between ministries to increase the 3G and the broadband wireless entry fee.
We know well that low tariff broadband networks will determine the future of India. They will determine how much access the poorly connected Indians and rural areas will have to e-governance, e-education, e-medical, e-banking, e-agriculture extension, e-animal health and numerous other services. We cannot compromise the future of India by going on the route of high entry fee and then trying to make up to the poor through unimplementable cross-subsidies.
Cheap broadband connectivity can spur a revolution similar to that seen in the 1990s through the creation of software firms and business process outsourcing and knowledge process outsourcing firms in urban India. Can we deprive rural India of such services/connectivity through wireless and 3G networks, for meeting our fiscal deficit?
We have 40 million fixed telecom connections today after the taxpayer spent huge amounts to develop these networks. But we have far more cable TV connections because the cable operators connected homes at no cost to the taxpayer. New technologies and a unified/liberal telecom regime can permit such networks to offer telecom services too. Should we not allow them?
Another way of keeping the entry fee low for 3G spectrum would be to allow 2G networks to carry 3G technologies. This is happening in India, though with state restrictions. A clear statement that this is permitted would lead to lower bids for 3G and broadband wireless access and an efficient broadband network.
A word about the broadband wireless entry fee. The state has prescribed this as half of what is levied on 3G. This is illogical because such networks can only carry data and not voice and today most of our network business—around 90%—is voice-based. How can they be charged half the price? The auctions must lead to price discovery without fixing a reserve price.
The last few years have shown that communications is the best investment for a country and we should not shift resources from the telecom sector for funding unviable sectors of the Indian economy. We did this until 2003 and reached 5% teledensity. We have the opportunity of a lifetime to give broadband to all in five years by rationally implementing controlled auctions both for 3G and broadband wireless, and by allowing 3G technologies on 2G networks like in other countries, and not try to extract money from the telecom sector, severely restricting its growth.
Pradip Baijal is a former chairman of the Telecom Regulaotory Authority of India. Respond to this column at email@example.com