From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Duopoly threat in India's telecom sector
The near-death of competition signalled by the incipient exit of Vi late last year pushed the Department of Telecommunications (DoT) to announce steps to prevent the premature exit of a sagging operator.
- 5G is the 5th generation mobile network.
- It is a new global wireless standard after 1G, 2G, 3G, and 4G networks.
- 5G can be significantly faster than 4G, delivering up to 20 Gigabits-per-second (Gbps) peak data rates and 100+ Megabits-per-second (Mbps) average data rates.
- 5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices.
- 5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users.
- Higher performance and improved efficiency empower new user experiences and connects new industries.
- With high speeds, superior reliability and negligible latency, 5G will expand the mobile ecosystem into new realms.
- 5G will impact every industry, making safer transportation, remote healthcare, precision agriculture, digitized logistics — and more — a reality.
India’s telecom sector: From monopoly to hyper-competition to duopoly
- India’s telecom market has seen monopoly as well as hyper-competition.
- Twenty-five years ago, the government alone could provide services.
- Technology and deregulation: In the following years, the combined forces of technology and deregulation helped break the shackles of public sector dominance despite the latter’s stiff resistance
- In the following years, there were nearly a dozen competing operators. Most service areas now have four players.
- However, the possible exit of the financially-stressed Vodafone Idea would leave only two dominant players-Airtel and Jio in the telecom sector.
- A looming duopoly, or the exit of a global telecommunications major, are both worrying.
- They deserve a careful and creative response.
Government package for telecom sector to prevent duopoly
- The near-death of competition signalled by the incipient exit of Vi late last year pushed the Department of Telecommunications (DoT) to announce steps to prevent the premature exit of a sagging operator.
- As a part of its support package for the telecom sector, in October 2021, it dispensed with the requirement of performance bank guarantees required earlier as security.
- It increased the tenure of spectrum holding from 20 to 30 years.
- It allowed for the surrender of the unutilised or underutilised spectrum after 10 years.
- Most importantly removed the levy of spectrum usage charges.
Why competitive telecom market is important?
- Key to achieving digital ambitions: A competitive telecom sector is fundamental to realising India’s digital ambitions.
- Innovation: Monopolies have no incentive to innovate.
- Investment: The competition will guarantee that operators find it attractive to invest in network infrastructure upgradation and offer consumers a wide range of innovative service options.
- Source of revenue: A competitive telecom sector would be an indirect source of tax revenue as well.
- How to make market competitive? Competition cannot be willed into the sector.
- It needs careful nurturing, assiduous fostering and regulatory neutrality.
Way forward on 5G
- Structural changes: While the package may have prevented the exit of Vi from the market, to embed competition within the sector, structural changes are necessary.
- The imminent 5G networks demand massive investment and sophistication of operations.
- 1] Level playing field: This will not be achieved unless the playing field is level across the relevant operators and honest incentives are provided to operators to embrace new technology.
- 2] Change the spectrum allocation method: There is no doubt that spectrum auctions have served India well in the past due to the acrimonious political economy associated with administrative spectrum assignment, including First Come First Serve (FCFS) method.
- The auction regime worked well when demand exceeded supply, but if there is an adequate quantity of spectrum for everyone, that constraint would not exist.
- Administrative assignments can thus be considered once again.
- 3] Administrative assignments: An administrative assignment will include the possibility that all spectrum can be assigned at reasonable prices and in the process, a grand bargain can be struck with telecom operators.
- 4] Assigning 5G spectrum for private enterprise business: TRAI and the Digital Communications Commission (DCC) are considering whether 5G spectrum should be assigned to companies like TCS, Amazon and Google, among others, for their private enterprise business.
- 5G spectrum assignment for enterprises would adversely affect the business model of telcos.
- But there will be enterprises that telcos could serve that are not large enough to purchase 5G spectrum.
- A grand bargain that allows enterprises to buy 5G spectrum while assigning spectrum to the existing telcos through the administrative route will also serve the revenue needs of the government.
- 5] Privatise public sector operator: This is an opportunity to also signal to the public sector operator that 5G business is outside the range of its capability set.
- Hence like Air India it needs to be privatised in the fullness of time.
- These are difficult decisions and will need much more political will than in 1994.
Consider the question “Why a competitive telecom market is a prerequisite for achieving India’s digital dream and why an eminent duopoly in the sector stands to threaten that dream? Suggest way forward.”
It would be tragic if India’s telecom-access market was to be reduced to only two competing operators, as we have a long way to go. What we need is structural changes in the sectors as well as the way the sector is regulated.
Back2Basics: Spectrum usage charges
- Companies had to pay 3-5 per cent of their adjusted gross revenue (AGR) as spectrum usage charge to the department of telecom.
- If they share spectrum with another operator, operators must pay an additional 0.5 per cent of AGR for that band as SUC.
- However, in September 2021, the Department of Telecommunications (DoT) decided to remove the floor rate of 3% of the adjusted gross revenue (AGR) for operators to pay their spectrum usage charge (SUC).
- The removal of the clause fixing a floor rate of 3% was done to give effect to the recently announced telecom relief package.
- Though the telecom package talks of scrapping SUC only on spectrum acquired in future auctions like that of 5G, if the 3% floor is abolished, as and when operators acquire more spectrum in future auctions, their SUC will become zero on the entire holding.
- This is because of a complex weighted average formula to calculate the SUC of operators who have a mix of administratively allocated spectrum and acquired through auctions.