The department of telecommunications has asked the Telecom Regulatory Authority of India (Trai) to advise it whether the current seven to eight mobile operators in each service area are too many. A few weeks ago, the former minister for communications, Dayanidhi Maran, told reporters that third-generation (3G) services would be open to additional, possibly international, players.
Can the government be serious about both at the same time?
Never before—and perhaps nowhere more than in India—have wireless technologies been such a potent and versatile tool. The connectivity, convenience, fashion and fun that mobile phones combine make them universally relevant. Wireless markets in India—today boasting six million new subscribers every month, coupled with the lowest prices in the world—should soon be able to connect the remaining areas (largely rural). And, at a fraction of the costs estimated barely a decade ago!
Once broadband is deployed, many more services will be available. Strategic government support to ensure that markets remain competitive and continue to grow can work wonders. However, policy or regulatory confusion at this stage can be devastating for investors and users alike.
A recent report on advanced wireless services sponsored by the Confederation of Indian Industry (CII) noted that moving to 3G from the current 2G can help mobile players to expand their service offerings as well as ease the spectrum crunch. Most 2G players expect to move their more lucrative customers to 3G, especially since several handsets in use support 3G services already.
Many 2G operators claim all mobile services—including 3G— are already covered by their existing licences. If this is true, it does not follow that spectrum for 3G should be given free to mobile operators, as 2G currently is. The mobile licences have no commitments on allocation or pricing of spectrum. So, the government is entitled to, and must, conduct a transparent process, such as an auction, to allocate and price the limited 3G spectrum available.
2G operators with substantial investments in infrastructure offer better value to regulators and subscribers alike by using 3G spectrum more effectively and expanding the range of services on offer to users. The claim of existing 2G operators to offer 3G deserves priority, since new stand-alone 3G players at this stage will mean having to forego the opportunity to enhance the reach and quality of existing mobile services. Typically, six mobile operators compete for every subscriber’s business, more than elsewhere in the world. The resulting additional competition may offer little to counteract the risk of closing growth options for existing players. The government decision on who can get the additional spectrum by bidding in 3G auctions will need to reflect this.
However, there is evidence that transparency in auctions can often accompany harmful speculation that can distort markets for a long time. So, the auction design must incorporate features that encourage rational bidding and resist short-sighted attempts to maximize revenues to the exchequer. The design must ensure that the spectrum is auctioned in units that enable existing players to compete fairly for 3G, without compromising on the transparency of the process.
Competition in the mobile sector has been good for consumers, operators as well as the government. The cheap service, the fancy valuation and the huge revenues of the sector, of which the government gets 6% as licence fees was inconceivable only a few years ago. More entrants, especially foreign ones, can bring in more money and help raise the bar on the quality of service standards, billing practices, etc. This is an area where the poor record of most existing players is not entirely explained by the spectrum crunch they face.
There can be no serious argument for curtailing competition in the sector indefinitely, especially since new wireless technologies are even more efficient in their use of spectrum. It is also quite peripheral that the proposed stand-alone 3G players , without a base of 2G subscribers, may be unviable or that the existing licensing regime has no provision for stand-alone 3G services and recognizes only cellular mobile and universal access licences. Viability or profits should concern investors alone; the rest can be fixed by appropriate modification of the licence and interconnection agreements.
The two seemingly conflicting goals of giving priority to 2G players to deploy 3G and of promoting competition have to be reconciled. This can best be done by careful sequencing of the 3G licensing processes and active support for consolidation in the sector. Trai’s recommendations on how to proceed on this are due soon, too. However, a clear statement, in advance, that new entrants would be allowed after more spectrum becomes available, or, if a critical market size is reached, will remove uncertainty, assist potential entrants, and discipline poor performers among the existing 2G players. Work along such lines should be top priority.
Mahesh Uppal is director of Com First (India) Pvt. Ltd, a consultancy company specializing in regulation and policy. Comment at firstname.lastname@example.org