It is unfair to put a price to something that was created free by nature and is never going to be depleted.
Someone in the Finance Ministry is soon going to realise that the Government has lost lakhs of crores of rupees by a mere oversight — they could have issued permission for a limited number of suppliers for each industry, and could have auctioned those permissions at the highest price to willing suppliers.
Take the automobile industry as an example. There are almost a dozen manufacturers going about their routine business of manufacturing and selling cars.
While they pay excise duty and income tax on their profits, the Government could have earned even more if it had restricted the number of manufacturers to four and selected them by auctioning the permission. Similarly, it could have auctioned a limited number of permissions for making soaps, toothpastes, shirts, and so on.
Preposterous idea?
This idea will sound preposterous even to the mandarins in the Finance Ministry, as indeed it should. But on the other hand, this is the situation obtaining in the telecom industry. It is not so obvious because instead of using the phrase “auctioning the permission to do business”, we use the phrase “auctioning the spectrum to a limited number of operators”. The outcome is the same in either case.
It did not seem much of a problem in the early days of telecom when the potential of the market was still to be discovered; the operators could justify the high bids for spectrum as an insulation against potential competition.
That was why the operators felt they had been stabbed in the back when the Government first allowed the state telecom companies MTNL and BSNL in, and followed it up by letting landline operators expand their licence to offer mobile services.
Mobile services in India, and other countries as well, suffer from distortions in free market principles, caused by the auction of spectrum.
Auction was justified on free market principles, as it was held that suppliers would bid depending on how economically they could make use of the so-called scarce resource. Yet, artificially limiting the number of suppliers in a market and then asking everyone to bid to enter the market is hardly free market economics.
Unlimited resource
At the heart of this issue is the perception that spectrum is a scarce resource that can only be allocated to a limited number of operators. It turns out that this perception can be challenged by viewing the situation in a new light.
Spectrum is seen as a limited resource, but it will never run out, unlike oil or coal. A particular mine or oil well can be given to only one entity at a time. The regime of auction is a carry-over from exploitation of other physical natural resources, where mining rights can be auctioned.
The spectrum is limited in the sense that only so many users can use it at the same time in the same local area.
The area is as small as the range of a mobile tower, not the entire circle. The limitation is in terms of total number of concurrent users, not the number of operators. Unlike a mine, multiple operators can provide services in the same local area at the same time.
As of today, the spectrum for a particular communication standard (2G, 3G, 4G, GSM/CDMA) is artificially sliced and the slices are sold to the operators.
The spectrum is divided at the circle level, which is almost as large as a State. An operator, in turn, dynamically further slices the spectrum in each base station area and allocates it to the user making a call or downloading data.
The situation at the local area is very different from the situation at the circle and changes from second to second. At one place, one operator has more subscribers than the others, and at one moment, more users of one operator may be on the call than the others, compared to another moment. The present method of allocation of spectrum is rather rigid and therefore very inefficient.
The main point is that spectrum doesn’t have to be allocated to the operators, but to users who are making a call at a given place and time.
Understand better
To better understand the situation, let’s go back to automobiles. In the auto industry, the road is a scarce resource. In fact, the Government spends money to build and maintain roads, unlike spectrum.
Would it make sense if we divided the road between the auto manufacturers, such as one lane for Mercedes, another for Hyundai, and a third for Maruti, and then auction the lanes to them?
Road space is dynamically allocated to users. Space is dynamically allocated to the user when he drives out of his parking at the origin and is taken back from him when he parks his car at the destination.
It is technically possible for multiple operators to share the bandwidth in each local area. When someone makes a call, the base transceiver station (BTS) of the user’s operator can pick up a free frequency from a pool shared by the BTSs of all other operators in that area, allocate it to him, and, when the call is finished, return the frequency to the pool. The next minute that same frequency can be used by a customer of another operator in the same area.
This is already how the bandwidth is allocated to the users of a particular operator.
All we need to do is to put in place the technical standards through which the operators can share the bandwidth. There will be no changes in the handsets or the basic design of the base stations.
These suggestions imply that there is no need for the operators to pay massive sums to the Government in the name of spectrum fees.
The telecom industry is already crushed by heavy debts, bearing this artificial regulatory cost. Finally, this cost is recovered from the users of mobile services, which is a needless tax on them.
They are already paying service tax and the operators pay income tax on the profits earned, besides the levies to the local municipal bodies for the towers.
No golden eggs
There is no reason for the Government to see telecom users and mobile operators as the goose that lays golden eggs. There should be no artificial limits on the number of operators.
The optimum number of operators will be decided by the market, just like any other industry. The telecom industry will be infused with fresh energy and more bandwidth.
Costs will drop and the competition will increase, cutting down mobile bills while increasing profitability.
Operators will compete with each other on technical and operational merit rather than by blocking out potential competitors by having to buy permission for doing business.
The Government should not see it as an unfair loss of revenue because if it does, it has just found a way to make billions from each and every industry by auctioning the permissions! Why limit it to telecom?
(The author is Vice-President, SkyTran India. The views are personal.)