A mixed bag

A mixed bag

On Monday, the government announced three major policies for the telecom sector. While there are some positive features, there are major flaws in each.

The least flawed is the number portability policy. Allowing consumers to change service providers without changing numbers should spur improvement in service levels. Some say number portability is being introduced to help one operator. But then, the New Telecom Policy drafted to increase competition, and move to revenue share and technology neutral licences was also, at that time, said to benefit the same company. Since then, the sector’s growth has benefited both consumers and service providers. Regardless of an underlying motive, if any, a similar outcome can be expected from this move.

Even here, if the government is less niggardly and assumes the costs of necessary common services, instead of passing these on to the operators, perception of the policy’s neutrality should improve.

The policy for wireless broadband is perhaps the most flawed. Despite its pretensions of addressing “the level of broadband penetration in the country, especially in rural areas", the policy envisages a reserve price of “25% of amount for 3G spectrum", which is quite pointless for rural areas, where spectrum is plentiful. Further, conditions imported from the 3G policy such as rural roll-out and no trading can delay wireless broadband in rural areas. This is a casualty of the continuing reluctance to divide spectrum in smaller geographical and frequency blocks.

As for the 3G policy itself, there are many flaws, with the decision to auction appearing to be the only silver lining. This makes the government’s continuing reluctance to adopt auctions for 2G more strange.

First, the limitation on number of operators is because spectrum is sold in large geographical and frequency blocks. This delays the spread of service and causes the late roll-out of mobile services to smaller towns by restricting entry of other service providers. Instead of the government aggregating spectrum, smaller sized frequency and geographical blocks will enable operators to decide how much of it they want — 10MHz or 5MHz, or less, and where they want it, based on their commercial imperatives. The scarcity of spectrum is a problem localized to big cities, which should not affect the policy and, more importantly, price, in other areas.

The argument that auctioning 10MHz instead of 5MHz lots is needed to provide new 3G entrants parity with incumbents rings hollow, since no new entrants will get spectrum in the 800MHz band for CDMA-based 3G type (EV-DO) services, even as incumbents “would have to pay an amount proportionate to the highest bid for spectrum" in the 3G band.

Second, this flaw is made more egregious by the five- year ban on trading and resale. Despite rejecting Trai’s recommendation to limit 3G to existing service providers, the link between service provision and spectrum ownership remains. In the case of towers, the concept of sharing, that is, purchasing tower services, instead of owning towers, is now officially encouraged, thus separating, in principle, ownership and delivery. Spectrum is like property. Does every business own the premises it operates from? Why not allow spectrum to be leased and sub-let? Moreover, for an evolving technology such as 3G, facilitating the acquisition of spectrum in limited quantity and in specific locations can encourage innovative but small high-tech service providers.

The third major flaw is the persistence of rural roll-out obligations. This is a complete anachronism, when every service provider pays into the Universal Service Obligation Fund, which is having trouble spending its allocation. Instead, changing the wireless broadband policy would be much more helpful.

Can the government fix these flaws? Write to us at views@livemint.com