The Hindu Business Line : Three-G thinking for 3G

The Telecom Regulatory Authority of India has rejected the idea of imposing an entry fee on companies providing 3G services. A fixed fee based on the scarce-resource model of radio spectrum would have eroded the number of 3G service providers. It would have sapped the vitality and the viability of those that could afford to pay the fee. TRAI deserves to be complimented for suggesting the revenue-sharing model, which is what the country needs, say G. Ramachandran and R. Vijay Shankar.

INDIA HAS given itself a great chance to leapfrog into convergence. It has given itself abundant room for harvesting the infinite benefits that technological convergence will heap on innovators. It has chosen to make entry into commercial third-generation (3G) services `free'.

The Telecom Regulatory Authority of India (TRAI) has squarely rejected the idea of imposing an entry fee on companies providing 3G services. TRAI has suggested a revenue-sharing model. Companies will pay the government a portion of their revenues from 3G services. TRAI deserves applause.

The Communication and Information Technology Minister, Mr Dayanidhi Maran, has boldly backed TRAI's choice. What is more important is that the Association of Unified Telecom Services Providers of India (AUSPI), the telecom industry's think-tank and pressure group, also supports TRAI's choice (Business Line, May 18).

Choice that liberates

A choice is quite different from a decision. Intelligence, information and insights into the future drive the vitality and widespread acceptability of a choice. Its vitality and acceptance are not wholly or solely based on power.

By contrast, a decision is driven by power. Someone in power or an empowered institution typically makes decisions. Power and empowerment are vulnerable to abuse.

TRAI's choice frees mindsets at one level. It positions radio spectrum as a collective or common resource whose utility and availability are no longer functions of how much its users pay. It dares to suggest that users need not pay to use 3G spectrum. Thereby, it positions radio spectrum as an abundant resource.

At another level, TRAI's choice frees up the commercial space for unbounded competition among service providers. It frees up the space for service level augmentation. It frees up the space for adding an infinite range of commercially valuable 3G services and for the customised delivery of specific services to targeted customers.

TRAI has freed up the space and the mindset for an explosion in a range of new-generation telecommunications services.

To be sure, the Government will win. But it will not win at the expense of companies providing 3G services. TRAI's revenue-sharing model spawns goal congruence. There is no way the government can win at the expense of the companies providing 3G services. That is quite unlike Europe's governments. They fattened up their coffers by more than $100 billion while the paying companies writhed in pain.

In India, the Government's share of 3G revenues will kick in and then rise only when companies begin to exploit the new capabilities and the new technologies.

Had a fixed, or an absolute, fee of, say, Rs 1,500 crore been set for 3G spectrum, the government's share of 3G revenues will not rise. The fee would have become the proverbial albatross around many necks.

Given the magnitude of the implications of this move and the technological and commercial opportunities that await India, it is easy to support the view that TRAI has made an epochal choice. It is difficult as well as inapt to call this a decision. By buying into this choice, Mr Maran has acted in the best interests of all: The Government, the current and future service providers and the millions of current and future customers.

Not a scarce resource

The choice before TRAI was complex. It had to view radio spectrum either as a scarce or as an abundant resource. If it were scarce, TRAI had the unenviable and complex task of setting a value that would maximise the utility of the resource. Moreover, it should have set a value that maximises the efficiency of utilisation of radio spectrum.

Towards satisfying the utility and efficiency criteria, TRAI could have chosen to auction radio spectrum or to merely set an entry fee. Diligent regulatory bodies normally apply the twin criteria of utility and efficiency in the context of scarce resources.

Conscientious regulatory bodies apply two more criteria in the context of depleting resources: Equity and sustainability.

If radio spectrum were an abundant and inexhaustible resource, the responsibility for maximising utility and efficiency could be left to devolve on the companies that provide 3G services.

TRAI has done its homework correctly. It has found no necessity to set a fixed fee for usage of spectrum. It has found no necessity to allocate the available radio spectrum through an auction. TRAI deserves applause.

Technically correct

Radio spectrum has traditionally been regarded a scarce resource. This perception is so strong that the scarce-resource view is accepted as a fact. Radio spectrum is a resource. But it is not scarce, thanks to technological progress.

It is more like the sea. It is vast. There is enough for everyone to use to support shipping traffic. Radio spectrum can be used without a licence. It can be treated as a common resource.

There is no law of nature that makes radio spectrum scarce. If there were a law, then allocating frequency through licences and auctions would be a good solution. But radio spectrum is scarce because of outdated receivers built on outdated technology and components. These receivers need channels to avoid interference.

But radio interference is not a physical phenomenon. It is a technological problem. The scarce-resource view of spectrum is the unavoidable result of dumb receivers and dumb radio antennae that mix up the airwaves after receiving them.

Archaic technology makes airwaves a scarce resource. Therefore, frequency and power have to be defined and then allocated.

Smart technology and smart devices free up airwaves. They free up radio spectrum. Spread spectrum or wide-band, smart antennae, mesh networking and cognitive radios are four distinct examples of smart technology and smart devices. They are software-powered and computing intensive.

Mobile handsets and base stations that use smart technology and smart devices distinguish signals in the same frequency. That is when radio spectrum stops being a scarce resource. It becomes an abundant resource.

Dr Kevin Kahn, head of communications research at Intel, has with a flourish stated that the tyranny of the dumb radio is over. In Dr Kahn's world, communication is no longer a matter of frequency, but of computation.

And, the dramatic rise in computing power and the astonishing fall in the cost of computing power have made smart radios clever and inexpensive. They hop around on frequencies but pick out only the relevant signal.

Commercially brilliant

3G services offer high-speed, always-on data connections. 3G technology is faster than 2G technology. It supports applications such as video-telephony.

It supports advanced data services with full Internet access. 3G networks are also designed to support large numbers of users more efficiently than 2G networks. Incidentally, they offer voice services too.

It is difficult to ignore the awesome potential of 3G. The chief justification for 3G is based on its data services, video and high-speed Internet access. Quite like the use of voice capabilities of 2G a decade ago, the use of data services, video and high-speed Internet access is expected to be value- and price-driven. Low tariffs will expand the 3G market.

But unlike voice, 3G services will be driven by the specific needs of customers. Not all customers will want the same bundle. Not all customers will want the same level of services. Not all customers will want the same reach of services. Not all customers will respond to prices homogeneously. 3G offers enormous scope for commercial customisation and differentiation. In fact, its commercial success may well depend on customisation and differentiation. Where markets dependon customisation and differentiation, different service providers will rush in to offer customised and differentiated services.

At this point of commercialisation, India's market for 3G services requires many customised and differentiated services at low volumes. Volumes and usage will rise later. But 3G companies will have to be viable now in order to reap the benefits of rising volumes, revenues and profitability.

A fixed fee that is based on the scarce-resource model of radio spectrum would have eroded the number of 3G service providers. It would have sapped the vitality and the viability of those that could afford to pay the fee. India needs a revenue-sharing model. TRAI deserves to be complimented for having suggested the revenue-sharing model.

(G. Ramachandran is a financial analyst. R. Vijay Shankar is Director of SSN School of Management and Computer Applications. Feedback may be sent to indiagrow@yahoo.com, shanxvijay@gmail.com and pari@thehindu.co.in)

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