The Hindu Business Line : Spectrum Wars — Why an auction is not the solution

The permit-licence-quota (PLQ) regime was all but swept away by the winds of liberalisation, imaginatively allowed in from the early 1990s by the then Prime Minister, P. V. Narasimha Rao. But while such a regime has vanished in almost all areas of industrial activity, it is still strong in telecommunications and civil aviation. The spectrum wars are mainly due to the vestiges of the PLQ mindset still ruling the minds of many in the DoT.

The end of wired telephone connections began in the last few years of the 20th century. This century will have little of them; all communications will be wireless from the user to the network and the network will be of computers routers, software, and optical fibre transmission highways.

The wireless spectrum required for connection from the user to the last network element — that is, the radio base station (RBS) — is what is being contested for; mobile telephony depends upon the repeated reuse of the same frequency in different blocks or cells of a given territory.

Even in the early 1990s, the General System for Mobile telephony (GSM) was being contested by the code division multiple access (CDMA) wireless technology. In the latter, the entire given bandwidth or slice of the spectrum is used for every conversation of a user by every user’s conversation being differently encoded. This type of multiplexing, that is, packing a large number of conversations in a given bandwidth, is reckoned to be a more efficient use of spectrum than the GSM where in time division multiple access (TDMA) is used by slicing up the given bandwidth for use by different speakers.

When mobile telephony was to be licensed, there was discussion in the DoT as to whether they should be going for GSM or CDMA or some other technology.

The DoT decided that the licensees in India should use GSM only. It should, therefore, be realised that the GSM technology is not a choice of the licencees but what has been prescribed by the DoT in its wisdom.

With the passage of time it became clear, especially with different version of the CDMA being efficiently and successfully adopted by countries such as Korea and China, that CDMA would compete with GSM. While the licenses of the 1995-96 vintage had the GSM prescribed for them, the New Telecom Policy (NTP) of 1999 gave the choice to the licensees.

Reliance and Tata Tele being the later entrants chose the CDMA. It is very necessary to remember this clear distinction that GSM was imposed on the P-Telcos while the CDMA is the choice of the licencees themselves. The GSM licencees had sunk tens of thousands of crores of rupees into setting up their networks and expanding them. They are thus locked for the life of GSM networks they funded, to continue with the technology .

Service area

It is possible to get more and more customers on to the GSM network by reducing the area of a given cell in a service area (the state-wide licence). The less the area of a cell, and therefore the larger their number, the more would be the radio base stations. And this larger number will have to be connected to the mobile switching centre (MSC), further increasing the capital required for the network expansion.

There is a practical limit to which the cell size could be reduced. That is set first by the interference between immediately non-adjacent cells the one after the adjacent cell which use the same frequency band. Hence, the possibility of interference.

The second limitation is set by the number of handovers. This is when a person is moving from one cell area to another, i.e., a different frequency bandwidth will be used by the mobile subscriber (without himself doing anything) .

The smaller the size of the cell, the greater the number of handovers and, therefore, the load on the switching system. The larger number of cells and, therefore, the radio base station, the higher the cost of their connection to the mobile switching centre and the larger processing for the increased number of handovers.

Since the licensing has become technology-neutral, we can expect that future licencees can have one more choice – China’s Time Division Synchronous Code Division Multiple Access – (TD-S CDMA). This would mean that in the hands of users, there would be a variety of cell-phones; some GSM and some of different brands of CDMA. These will have to be multi-mode, multi-frequency capable. That would add to their cost.

Quite a large amount of spectrum is available with the armed forces. They are required to move into new bands and the cost of such movement being occasioned by the new users of the spectrum released, the armed forces will have to be compensated.

This is just like if you want to increase the width of the road by demolishing buildings on either side, the building owners have to be compensated either by allowing them to add one or two more storeys, if the buildings permit, or giving them cash compensation or alternative sites and the cost of the new construction, etc.

Who gets what

Who is to be given how much bandwidth? In some countries of the European Union spectrum for the third generation (3G) mobile telephony was auctioned. The bidders gambled. They committed huge amounts for the spectrum. Their business plans came to naught because none came to finance them.

The construction of the 3-G networks was delayed. The operators petitioned their regulators and governments to allow them to share facilities such as radio base station towers and allied equipment, and re-scheduled coverage of the licenced territory. That should be a lesson for us.

When the first mobile telephony licences were given on bidding basis the winning companies were about to collapse, unable to pay the huge fixed burden of fantastic licence fees, and a new National Telecom Policy (NTP) had to be promulgated in 1999 to mitigate the crippling rigours of the gambled licence fee. They were migrated from fixed licence fee payment to revenue-sharing. We should, therefore, not auction spectrum.

What will the government do with the licence fee and spectrum charges realised from the telephone companies. These are costs to the companies. They will be realised through prices to consumers. Therefore, higher licensing fees and spectrum charges, whether by auction or by other methods, will tell upon the affordability of telephony by more and more from the lower income groups of the population.

The revenue share realised from the license fee and the spectrum charges are now not set apart to promote increasing affordability.

R&D mission

About Rs 10,000 crore was collected as R&D cess on the revenue of the licensed telephone companies but was diverted. Unless we take up an R&D mission in telecom, we will be reduced to perpetual importers of technology, as we are already importing even from China.

The next charge should be for universalisation of telecom and IT services. The Universal Service Fund (USF), which is 5 per cent of the revenues, can be augmented by fully contributing the licence fee, revenue share and spectrum charges into that fund and utilising it to put telephones and Internet services in all schools and colleges and even classrooms in university-grade colleges, as in the US.

All libraries and all hospitals could also be given telephone and Internet connections under capital as well as operational subsidies

E-governance and computerisation of various entrepreneurial and economic activities is in the interest of the nation. A number of applications will have to be developed in order to accomplish the present tasks and carry on activities in a more efficient and speedier manner.

Countries such as Singapore and Canada have funded enterprises for development of applications of computer and networking. So the augmented USF should aim at this type of promotion of informatisation of society.

(The author is Director, Centre for Telecom Management & Studies, Hyderabad. e-mail: hanuman.chowdary@tcs.com)

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