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Representational image  (REUTERS)
Representational image (REUTERS)

The time has come for ushering 5G in and 2G out

India’s telecom operators seem reluctant to take part in the 5G auction due to high prices

The immobility forced by covid-19 is arguably less traumatic for broadband subscribers, who can conveniently use videotelephony apps, such as Zoom and WhatsApp, to make up for the lack of face-to-face meetings. They can innovate and organize virtual conferences, family celebrations and memorials, classes, doctors’ appointments, romantic dates and binge on streaming video. Children and senior citizens are also increasingly comfortable using digital technologies creatively and effectively.

Current levels of broadband use, especially video, which typically consumes more data, is unprecedented, and can be traced to a boost in network capacity, especially after the introduction of 4G, which now accounts for 96% of India’s data traffic. However, more than 50% of India’s users depend on 2G, which offers little support for data services.

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Enterprises, on the other hand, crave the massive data capacity and functionality of the much-delayed 5G services. It will take significant innovation by the Telecom Regulatory Authority of India (Trai) and the department of telecommunications (DoT) to remove barriers in discontinuing 2G and introducing 5G services.

Few will contest the urgent need to discontinue 2G services. India’s leading telecom operator, Reliance Jio, which has an exclusively 4G network, advocates a 2G-free India. The government, too, reportedly wants state-owned BSNL to stop investing in 2G equipment.

However, this is not so easy. Bharti Airtel, Vodafone Idea and BSNL have roughly 400 million 2G subscribers, who contribute to nearly half their revenues.

As commercially-driven (and debt-ridden) players, they lack an immediate incentive to discontinue 2G, despite knowing that broadband services, where deployed, are boosting operator revenues.

The government has repeatedly spoken of India’s aspirations to deploy 5G and be a significant player in its development and growth. A high-level forum was appointed in 2016 to recommend a 5G strategy for India.

The National Digital Communications Policy, 2018, also highlighted its potential and Trai has recommended a reserve price for the auction of 5G spectrum in the 3.3-3.4 GHz and 3.4-3.5 GHz bands.

However, telecom operators seem reluctant to participate in the auction. They claim that the reserve price of 490 crore per MHz is high and the amount of spectrum on offer is insufficient.

On the other hand, the government has little incentive to forgo revenues, given the increasing pressure on its revenues, especially after the covid-19 induced slowdown.

The choices are difficult. It is no more realistic to expect commercial players to ignore profits than a resource-starved government to forgo revenues from the sale of spectrum.

An innovative solution is needed to ensure 2G users do not wait interminably to experience the full potential of the internet. Nor do businesses looking to exploit the vastly improved data speeds, latency and support for internet of things (IoT).

Trai and DoT cannot dictate the choice of technologies to private players, but can take concrete steps to incentivize phasing out of 2G and the rollout of 5G.

Existing levies and rules for spectrum need urgent review. The current flat rate of 6% of adjusted gross revenue for licence fees and 3% for spectrum usage charges is a self-defeating way to raise revenues for the exchequer and offers perverse incentives. It rewards underperformance, since efficient, revenue-generating players pay more.

Similarly, poor auction design is ensuring that valuable spectrum is idle. This includes precious 5G spectrum in 700 MHz and 3.5 GHz, and the much sought-after E and B bands. This is untenable.

It is critical that India undertakes creative reforms of levies and spectrum prices. They must reward efficient use of spectrum, upgrade of narrow-band networks and, importantly, development of markets. Idle spectrum must be freed up, at least till it generates significant revenues.

What the government risks losing in revenues, it should expect to recover through growth and tax collections.

Mahesh Uppal is a consultant specializing in regulation and policy.

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