Thursday, June 2, 2011

NTP 2011 Objective: Broadband

The Indian government has to choose between accessible, affordable services and short-term revenue

Shyam Ponappa / June 2, 2011

[Additional material: logic tree outlining the rationale for common spectrum + network added later]

Apart from the scams, confused ideas are roiling India’s telecom sector. One instance is the finance ministry urging spectrum auctions to collect Rs 30,000 crore to help bridge the fiscal deficit. Another is the Ashok Chawla committee recommending spectrum auctions for transparency, making transparency the criterion for managing spectrum. The committee apparently does not mention the disastrous US auction, and attributes the UK fiasco to extraneous reasons; presumably, they knew the facts.1 Such issues need logical and systematic remedies. Otherwise, the success of the telecom sector will degenerate into yet another failure.
Apart from transparency, public asset sales, including spectrum, need three other criteria:
Objectives: the transaction should be structured in the public interest;
A life-cycle analysis of costs and benefits, and not just windfall revenues (since short-term cash drives the finance ministry’s concerns, it is important for the ministry and the government to step back and consider alternatives, such as the sale of BSNL’s vast real estate. If the goal is ubiquitous and affordable broadband, this would be much less damaging to the public interest than spectrum auctions); and
End-to-end solutions are required from an integrated systems perspective.

The New Telecom Policy ’11

For the New Telecom Policy 2011 (NTP ’11), the first requirement is to define convergent goals. We could take a leaf from countries with excellent broadband that built high-quality next generation networks. While the US and UK have strong initiatives, Japan, Sweden, South Korea and Finland have highly rated broadband. Australia and Singapore are now building next-generation networks. Both are common-access, open-to-all service providers.

Spectrum Management
In India we must begin with unravelling the mess of spectrum management. There are two separate skeins. Legacy issues of irregularities and scams form one stream, to be dealt with by the process of law. On the other hand, policies for next-generation networks need a process of stakeholder workouts to deliver services. Broadly, there are two ways of approaching spectrum management. One is to allocate specified bands for exclusive use, as was customary until now. An alternative is to create a common spectrum pool for use by all service providers. In other words, any provider can dynamically access spectrum for carrying voice, image and/or data. This method of dynamic spectrum access is now feasible, and the US is starting off with TV white space. The Federal Communications Commission has appointed nine companies including Spectrum Bridge and Google as database administrators; a tenth, Microsoft, is under consideration. India could start out on this if the government chooses the objective of accessible and affordable services.

Network vs Revenue

The choice is between building/configuring a high-quality, least-cost network and high short-term government collections. Over a longer period, a restrained approach emphasising networks and services is likely to be superior to aggressive government fees, as we found with NTP ’99 — revenue sharing resulted in explosive growth together with higher collections than the amount foregone from licence fees (see data from the Telecom Regulatory Authority of India and the Comptroller and Auditor General2).

How can the government evaluate this trade-off? The diagram below outlines alternative approaches to spectrum allocation and the likely outcomes. The outcomes should be evaluated as public interest costs and benefits.

The first step is to choose between exclusive spectrum use and common access. Exclusive use entails allocation through auctions; methods like first come, first served (FCFS); or “beauty contests”, for example, the evaluation of stipulated criteria such as technology, financial capacity and so on. Auctions are transparent. Common access, too, is completely transparent, provided the usage and payment systems have integrity.

If there are few operators (three or four), each can be allocated 20 MHz or more for exclusive use. In such circumstances, the relative merits are not obvious. However, in an emerging economy like India – without a ubiquitous network and with too little spectrum distributed among many operators – the logical choice for efficient spectrum management is common access.
Auctions often lead to service deprivation because of high costs (the “winner’s curse”). However, there are exceptions, where bidding is kept reasonable, as in Finland, or France because of its timing, after the fiasco of the European auctions. The other alternatives, FCFS or beauty contests, can result in low or high costs depending on government policies. High fees ratchet up costs with windfall gains to government in the short term, but users are deprived of these funds for networks and services. For example, in India, while the government collected nearly Rs 1,03,000 crore for 3G and broadband wireless access auctions, new facilities and services have been slow. Instead, this spectrum is largely used to support 2G users.
Low fees would have improved the odds of high-quality and low-cost facilities, affordable pricing, and better coverage. The government, however, would have lost its short-term windfall gains.
Once the government sets the objective of affordable, high-quality services, the next steps will be:

(I) Spectrum allocation and management
The decision criteria are:
Technology: The rationale for optimal channel width is that with lower capital cost there is greater throughput with a 20 MHz band than with several smaller bands.
Economics: The capital cost of shared facilities through common access is far lower than if each operator invested in separate access networks.
Practical results: High-quality broadband in countries like Japan, Sweden and South Korea was built without spectrum auctions.
Carbon footprint and resources: Both are minimised with shared facilities, such as towers and equipment.
These reasons make common spectrum the logical choice, as against auctions for exclusive allocations.

(II) Common network
The same logic of economics and carbon footprint/shared resources extends to the whole network. The rationale of common access for oil pipelines, railways, airways, roadways and electricity networks applies equally to communications networks. [See diagram below on common network.]

Common Network

A common network is, therefore, a logical and environmentally sound choice. The question is how best to own and operate it.

1 E.g. see: “Winner’s Curse”, Chris Anderson, Wired, May 2002:
Revenue share collections by March ’07: Rs 40,000 crore; by March ’10: Rs 80,000 crore: “Performance Audit Report on the Department of Telecommunications, Ministry of Communications and Information Technology”,