With only 3 serious telecom operators, administrative allocation of spectrum space should take the place of auctions 

News: In January, the Department of Telecommunications (DoT) announced a rescue package for some telecom companies (telcos).

What were the rescue packages?

The government dispensed with the requirement of performance bank guarantees required earlier than security. It increased the tenure of spectrum holding from 20 to 30 years, allowed for the surrender of the unutilised or underutilized spectrum after 10 years, and most importantly removed the levy of spectrum usage charges.

In addition, the government acquired a 35% stake in Vi in lieu of the spectrum and licensee fee dues that the operator vowed to it

In addition, Airtel got a respite from the government on account of easier and longer payment terms.

Evolution of the Indian Telecom Sector

In 1994, there was a public sector monopoly in the telecom sector. The public sector operators served the elite.

In the following years, the combined forces of technology and deregulation helped break the shackles of public sector dominance.

A few years ago, India had a hyper-competitive telecom market. Indian telecom operators provided the lowest tariff in the world.

However, at present, the telecom sector is facing lack of market competition due to the presence of a virtual duopoly.

Why was there a need for a rescue package?

The private sector that embraced cutting-edge technology has established its market dominance in the Indian Telecom market. They have done so through the market rather than administrative fiat.

If there is no third telecom player in the Indian market, subscribers would be at the mercy of a virtual duopoly. In reality, BSNL has largely become redundant to promote competition in the telecom sector.

A competitive telecom sector is fundamental to realizing India’s digital ambitions. Monopolized markets are vulnerable to cartelization.

At least three telecom operators can provide serious competition in all aspects of network quality, package availability, and service innovation.

Monopolies have no incentive to innovate. Competition will guarantee that operators invest in network infrastructure upgradation and offer consumers a wide range of innovative service options.

The imminent 5G networks demand massive investment and sophistication of operations. It can be achieved through a level playing field.

Other challenges

There has been ill-conceived and botched-up First Come First Serve (FCFS) method for administrative spectrum assignment.

The government’s revenue generation was seen only through the lens of spectrum sold through auctions. The government did not see that it lost revenue as many of the spectrums remained unsold due to high reserve prices.

At present, the government will find it difficult to induce competition because neither deregulation nor technology can boost competition.

There is an ongoing debate between the regulator, TRAI, and the Digital Communications Commission (DCC) on whether the 5G spectrum should be assigned to companies like TCS, Amazon, and Google, among others, for their private enterprise business. Telcos and the DCC opposed this as this would impact both the business model of operators and the discovered price in an auction.

The Way Forward

Therefore, the government needs to redesign policy to induce competition. Preserving numbers, alone, is not sufficient to induce competition in the telecom sector.

In addition to preventing the exit of Vi from the market, the government needs to bring structural changes to embed competition within the sector. For example, revisiting the spectrum assignment regime.

The administrative assignments of spectrum can be considered once again. All spectrum can be assigned at reasonable prices and in the process, a grand bargain can be struck with telecom operators.

In a dynamic market such as telecom, operators have always faced and will continue to meet market uncertainty. In 2014, the Over the Top (OTT) players damaged the business model of telecom licensees by making all calls and messaging virtually free.

The government’s revenue collections could be higher if all spectrum is assigned (reduced risk of spectrum being unsold) instead of being auctioned. In addition, the government would have more tax revenue in a competitive telecom sector.

At present, the public sector operator (BSNL) does not have capability to run its 5G business. Therefore, it needs to be privatised

Source: The post is based on an article “With only 3 serious telecom operations, administrative allocation of spectrum space should take the place of auctions” published in the Indian Express on 14^th June 2022.