The policy mandates of the outgoing government in the telecom sector has left much to be desired. Other than some odd positive development like allowing passive and active infrastructure sharing the policy developments did not promote the furtherance of competition.

The test of competition must be contestability or ease of entry into the industry. Contestability naturally means that existing operators should not be able to preclude entry, but it also means that the government should not be able to stop it either. For quite a long time the DoT was not in favour of new entry. Moreover, any new entry is inextricably linked to the availability of spectrum for it to offer credible contestability. Here, too, the policymaker drew a naught, be it 2G or 3G spectrum.

If the policy has been so inimical how does one explain millions of subscriber additions each month? With saturated markets in the urban areas operators are now seeing expansion possibilities in tier two towns and even in rural areas. The “budget telecom” model (a model based on compromising on investments for quality improvements) will allow packing more subscribers with innovative market driven schemes and hence the policy is irrelevant for these outcomes.

However, it is still relevant when it comes to the issue of licensing, management of scarce resources and universal service. Unfortunately the UPA does not have a good record these.

Expressing dissatisfaction with the licensing procedure, TRAI said that the decision to give Letters of Intent to new players was not totally in line with their recommendations. TRAI said that while it had not suggested any cap on the number of operators, it had suggested that the government make sure that there is adequate spectrum before allowing new players. What irked the telecom regulator was that the DoT tried to justify its decisions on grounds that they were based on TRAI recommendations.

By issuing licences bundled with a promise of allocating 2G spectrum at an arbitrarily decided price of Rs. 1651 crores (the price paid by the fourth cellular operator way back in 2001) the policymaker violated all the principles of efficient allocation of this scarce resource.

Once these firms got the licence they resold large chunks of their businesses at a price that was determined in the market. Not surprisingly it was way above the paltry licence fee that they had paid. This rent seeking on the part of these companies was an obvious outcome of the flawed spectrum allocation mechanism. The policy of bundling spectrum with licence meant that the firms got spectrum cheaply and this denied the public huge amount of money.

TRAI was asked for recommendations on allocation of 3G spectrum in April 2006. It furnished them in September 2006. The government issued guidelines in November 2007. Since then, the government has been dithering and issuing amendments to the 3G policy and the auctions have been postponed till a later date. Policy sluggishness in this regard is also impacting the growth of Broadband through wireless. An important policy measure that can foster competition and prevent the possibility of collusive behaviour among current firms is number portability. The policy has not been implemented and the operators are in cosy arrangements as they do not compete on quality and the consumer is crying hoarse as the quality of service deteriorates across board.

Though the universal service policy was changed in 2007 and infrastructure providers became the beneficiary of the universal service funds but funds have not been disbursed speedily. Of the Rs. 20404 crores collected so far, India has been able to use only 34 percent for promoting universal access.

For the next government fixing of the spectrum policy and a speedy disbursement of universal service funds for projects that encourage infrastructure and backhaul creation should be important items on the policy agenda.

The author is associate professor, Delhi University, and advisor, Indicus Analytics

Source: The Financial Express