The Hindu Business Line : Time to speed-dial 3G

The country cannot afford any more delay in introduction of 3G services. Not only should the auction of 3G spectrum be carried out as per the time-frame announced but there is also a need to open up the existing so-called 2G bands for the exploitation of 3G equipment, says D. P. S. SETH.

The adverse economic scenario needs the benefits that broadband networks offer and 3G can be a major contributor to this.

The Convergence Bill 2001 had proposed telecom reforms, seen as a pre-requisite to implementing effectively the planned changes in the telecom sector with evolving convergence.

The Bill proposed leaving only the policy formulation function with the government and shifting licensing and spectrum allocation (including spectrum auction) to the telecom regulator.

The aim was to bring in transparency in these last two functions given the scenario evolving out of the convergence in telecom, IT and broadcasting.

It was expected that with such an arrangement, if the Government wanted a specific action, it would have to issue a directive to the regulator which, in turn, leads to more responsible and transparent governance.

Unfortunately, the law-makers could not come to a consensus and, instead, allowed inter-ministerial tussles to override considerations of the sector’s welfare.

The Bill lapsed and we see today the unfortunate consequences of vested interests and narrow thinking harming the single most promising sector of our economy.

A recent news item indicates that now the 3G and BWA spectrum auctions are likely to be further delayed because the Ministry of Finance wants the base price to be increased.

In a market-driven bidding process, the issue is not whether this request is justified or not. The issue is why this could not have been sorted out beforehand so that this sequential discovery of issues does not further push forward the already delayed process of 3G introduction.

Significance of base price

In a recently held open bidding process for one unified licence (inclusive of Wimax spectrum) in an Arab country, the consultants had estimated the value of the licence to be over $50 million. The bids were, however, invited with a base price of $1 million.

The contract was finally awarded to a foreign bidder at around $45 million because of the market forces. In fact, the highest bidder had proposed to pay over $100 million but the economic downturn hampered this bidder (another international company) from generating the necessary funds from the bankers.

This example is quoted here to bring out that base price, though important, is not such a big issue in a well-designed auction to deter governments from realising the true or near true value of the licence.

The fact that this was one of the most recent bids, when the international economic crisis had already surfaced, also indicates that, despite the economic downturn, investors are still willing to put down hard cash on the telecom sector.

In India, too, recent investments by Telenor and Etisalat point to the possibility of healthy bidding, as assessed by the market for 3G, irrespective of what the base price is.

The key issue right now is that if, indeed, the base price increase has been requested by Finance Ministry, it should be settled immediately so that DoT can go along with its process of 3G spectrum auction without postponing the auction date. Incidentally, the auction procedure announced by DoT appears to be a very robust one for it has to be complimented. The next impetus for telecom sector growth will come from broadband services and the value added services (VAS) riding on the bandwidth provided to the customers.

The existing fixed line access network is limited in its exploitability because of the quality of the old network and the limited broadband compatible local loops.

Regulatory interventions can provide limited help but the real growth can come from either fibre-to-the-home (FTTH) loops or wireless access, or a suitable combination of the two.

The business case for FTTH in India has not yet been conclusively established. Till that happens, and even later, wireless broadband access is the only feasible broadband and VAS access technology.

The appreciation of broadband connections in India is clearly increasing as the rate of growth of such connections during the last one year has picked up. At present, such connections are provided mostly by PSUs as the private operators hardly own any local loops. This rate needs to be boosted by enabling many more operators to offer high bandwidth, including connections that can be accessed when the customer is on the move.

The increasing use of Blackberry connections within the country is another indicator of the need felt by users for high bandwidth to increase their efficiency. It is also an indicator of the expected rate of absorption of 3G services when they become available.

Whenever one talks of mobile services, one looks at what is happening in China. The latest position is that, very recently, the task of starting 3G services based on their own TD-SCDMA standard as well as WCDMA and EVDO standards has been allocated to three different operators and spectrum has been made available to them. These services will be rolled out very shortly.

How 3G can help

According to market observers in China, this decision to introduce 3G services will help stimulate competition, optimise industrial chains and spur domestic consumption amid the economic downturn. The economic slowdown effects are clearly seen in India too.

One impact of such slowdowns is that businesses need to reduce travel expenses. The increasing use of video conferencing is an indicator that several businesses are discovering the efficiency and cost-saving features of broadband networks to help their businesses, particularly in the present time.

Mobile data usage too is growing rapidly. In fact, the present adverse economic scenario needs the benefits that broadband telecom networks offer and 3G will be a major contributor to this.

There was an opportunity to introduce these services soon after the TRAI recommendations to the government in 2005, or at least two years ago, when fresh recommendations were made.

Instead, there was considerable dithering and, given the present tussle between different government agencies, there appears to be a good chance of further delays. The country cannot afford such delays any longer.

Not only should the auction of 3G spectrum be carried out as per the time-frame announced, there is a need to open up the existing so-called 2G bands for the exploitation of 3G equipment.

We must remember that 3G services are not only broadband data but they offer voice services just like 2G networks, except that the 3G equipment do that far more efficiently so far as spectrum utilisation is concerned.

In fact, discussions with a number of existing 2G service providers indicates that most of them want to get the 3G spectrum immediately to take the pressure off their existing networks, arising from the paucity of 2G spectrum available to them.

The longer-term (possibly over one year) reform needed is to empower the telecom regulator to handle licensing and spectrum allocation (including auctions) as envisaged in the Convergence Bill with greater clarity and transparency, while forcing the government to think through transparently all policy initiatives carefully and holistically.

(The author is a former member of TRAI and ex-chairman of BSNL.)

Related Stories:
CDMA-based 3G services limited to existing players
Telecom players want 3G auction on time

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