As low as the clouds…

For telecom industry in India, the most interesting phenomenon of the day is the 2G Spectrum auction today through an online process. The two large players – Airtel and Vodafone – are bidding for incremental spectrum while smaller players including some of those whose licenses were cancelled as a whiplash action from the 2G spectrum scam earlier are also bidding for larger pieces of the spectrum.

The Government, commendable for not going into a shell and policy paralysis after the last scam, has set a reserve price (minimum expected bid price) for the bands totalling to Rs.150 billion ($3 billion). Although the bidding is not expected to be aggressive (an earlier auction for CDMA spectrum saw no bid), newspapers report the possibility that the Government could possibly make Rs. 250 billion ($5 billion) today through the auction process.

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The problem is not about the expectation of the Government that has to manage its fiscal means to earn more than it spends. It is not about the principle of auctioning radio waves – nowadays seen as the de facto method to ensure that the Government (and in turn, its people) get the best price for natural sources. It is the feasibility of adding such high costs to the operators.

2G is still the most important market in India – recent estimates show around 930 million subscribers exist. Even at the reserve price, the additional cost to be borne by the operator and pass on to the subscribers is Rs. 161.50 (minimum average). With the skew in revenue distribution across the subscriber base, this will translate to a 10X to 50X burden on the high-end users. Communications is fundamental to businesses small and big, and this will hence affect multiple facets of the economy, in turn.

Although the activist common man hasn’t realised it, he has gone and unleashed inflationary forces on himself!

So, while the Government is trying to hide its lack of fiscal discipline/efficiency (about which our activist common man is not worried!), they should at-least demand that the operators be more cost effective and, perhaps, mandate a few measures through policy.

A few ideas are given below.

Passive Infrastructure Sharing
The Government should mandate that operators should share passive infrastructure and ensure fair pricing norms are practiced for co-location. Co-location is a well defined practice in the wireline broadband world of Local Loop Unbundling. Operators who are not present in a shared facility should be indirectly penalised – i.e. by rewarding those who share (direct penalty will draw protests; operators can argue that their site location is their USP).

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However, the activist common man has already been complaining about Radio interference from towers with multiple service providers and the Government had recently brought down 1db on the safety limit for radiation.

Spectrum Sharing
Given the fact that the Government is bent on making money by auctioning spectrum, it is unlikely to allow spectrum sharing between operators.

However, a fair mechanism for allocating spectrum and deal locating the same based on demand may be put in place. Please refer my earlier post about this titled “A Spectrum Management Idea”, dated 8th August 2012.

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However, this may not maximise the money flowing to the Government and inefficiencies of the Government are beyond the purview of this blog.

Spectrum & Network Franchise
One more option would be if other businesses can be allowed to act as franchisees for parts of network resources that the operator possesses creating a Semi-virtual network operator (SVNO). This could help operators manage their business risk better and the network resources could be put to better socio-economic & infotainment use.

It is not a difficult thing to implement – technology wise – although the state if art network technology may not be supporting this idea. But I do know that equipment manufacturers are investing into this idea.

The idea is to make all network infra and associated wavelengths / bands available on demand from a cloud platform. Simple B2B self-care and settlement processes will help complete a practical solution. The concept is similar to that shown in picture below.

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(Note: Picture is indicative & doesn’t include all elements for the solution)

This last idea alone is worth investigation and investments. It can unleash the potential uses of spectrum and at the same time the bring down the costs through the “Cloud” model despite steep prices that may be paid for spectrum licenses.

Note: All pictures in the article are downloaded from web-sites on the Internet. The author does not claim any ownership nor attribute the context of their usage in the article to be resembling in any way the original intended use of the figures.

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