End of an era of cheap telephony?

In 1994, when for the first time a National Telecom Policy, (NTP) was announced, telephone density in India was 1 phone per 100 people and a year's telephone service would cost Rs. 10,000, exactly the same amount as the annual per capita income (PCI).

Today, with over 950 million telephones, the teledensity is nearly 80 phones per 100 people. At a peak of our expansion, we were giving 15 million telephones per month. The average spend on telephone service for a year today is less than 4 per cent of the annual per capita income.

Landless, daily wage labourers under the NREGA scheme, spending a day's wages, are able to get a month's prepaid telephone service. While in urban areas telephone density ranges from 85-125 per cent, in the rural areas it is about 40 per cent. These achievements became possible because of the new technology --- cellular radio telephony and repeated re-use of the radio spectrum and its allotment to every caller. While technology brought down costs, enlightened policies promoting competition and private sector investment brought down prices.

Modern telephony depends upon intense utilisation of broad radio spectrum. Wise policies have made our defence forces give up huge swathes of radio spectrum for civilian use. The pricing and allocation of radio spectrum and the number of companies that can be allowed to competitively operate in a given area, would determine the costs and outreach of the telecom sector.

Cell phone prices have fallen from Rs 15,000 to Rs 8,000, while providing a wide range of services, such as access to the internet, digital camera, telephone directory, e-mail, and video telephony.

But India's telecom success story is not without negatives. Successive communications ministers from 2004 onwards have indulged in great malpractices in the allocation of spectrum as well as in issuing licences.

As long as licensing remains in the hands of ministers, scandals are bound to occur. Parliament members, vigilant officers and constitutional bodies like the Comptroller and Auditor General of India and the Public Accounts Committee would have to unearth the rip -offs.

The most perplexing part of it all is the Communications Minister's assertion that there is no loss to the public exchequer due to arbitrary allotment of licences and valuation of spectrum (when it was given by a minister of a partner party). Even the Prime Minister once said that there was no loss to the exchequer, and yet we have a minister, secretaries, and an MP in Tihar jail.

TURN FOR THE WORSE

What's worse, the policy environment has changed. We are now faced with a regressive recommendation of the TRAI to fix the reserve price of spectrum at a staggering level. An all-India footprint with 5 MHZ allocation would cost over Rs.18,000 crore, which is about 10 times the price that was fixed in 2008. With more than 100 teledensity in urban areas, future subscribers would come from low-usage, low-paying rural areas.

But the investment in rural coverage would need to be more than for coverage in urban areas. Are we going to force telecom companies to invest huge amounts for low yields, by pricing the spectrum exorbitantly?

Auctions induce bidders to gamble. This happened in Europe and the US in respect of the 3G spectrum. Banks and investors did not finance the bid winners. Some surrendered their licenses and others prayed for concessions in implementation of the 3G networks. Auctions in India, also for the 3G and WiMax spectrum bands, resulted in very high cost. The result is high prices and slow extension of the 3G & WiMax networks.

Poor rural subscribers will fall off the network. Profits of telephone companies are already declining. Their share prices are falling. How would companies raise investment monies? The plight of Europe's Telcos must be a lesson for us.

TELECOM CORPUS

The huge money that goes into government coffers would be squandered on scandal-ridden, populist “welfare” schemes. The greater the welfare spend, the larger the sums to be pocketed by politicians in power, their accomplices in government and businessmen.

More than Rs. 20,000 crore have accumulated in Universal Service Fund (USF), a 5 per cent charge on the adjusted gross revenues of telephone companies. It has not been put to good use, like extending broadband internet to educational institutions, libraries and research laboratories.

Nor is it used to promote R&D, by which India could have fostered the likes of China's ZTE & Huawei Telcos, now world leaders with their own intellectual property. We buy know-how and equipment from them and Korea.

It is strange that the regulatory body, full of retired monopoly-practitioners of DOT and other departments, wants to maximise the price for spectrum. Should not the DOT and the TRAI be interested in making telecom services as inexpensive as possible?

The service tax at 10 per cent will bring a lot of money, about Rs. 30,000 crore a year; the revenue share will bring in more than Rs. 20,000 crore. Should not government be satisfied with receiving over 30 per cent of the total amount that users are paying to the companies? Even the average income tax in the country is only 20 per cent. Why should only telephone services be burdened with huge levies?

India's telephony costs are among the lowest in the world. In quick time, we have caught up with China on teledensity. Should access to cheap telephony be imperilled by greedy and unimaginative policies of unaccountable officials?

(The author is former CMD, Videsh Sanchar Nigam Ltd.)