India - Similar Technologies,Different prices

Mahesh Uppal

In an unorthodox approach to competition, the Department of Telecommunications (DoT) announced on August 1, 2008, separate guidelines for two competing broadband technologies, namely 3G and broadband wireless access (BWA), like WiMax. Amendments to those guidelines, barely six weeks later, have only exacerbated the distortions. This can hurt India’s plans for broadband access at a time when many governments, recognising its importance to future delivery of health, education, entertainment and to competitiveness of their economies are fine-tuning their strategies for universal broadband access.
In developing countries like India with sparse fixed-line networks, it is cheaper and faster to deploy broadband using wireless than alternatives like copper wires or optical fibre. Mischief or mistakes in wireless rules can be expensive.
With under five million broadband subscribers, India has met only half its modest target. A recent International Telecommunication Union (ITU) report says India lags behind most of its peers in Asia and elsewhere. Closing this gap will cost several billion dollars.
Our experience with mobile telephony shows money is not a problem, if investors can compete fairly for the potentially large pie that India’s size and population represent. However, the exponential growth of mobiles and the cheap services came around 2002, after the implementation of India’s ‘new telecom policy’ of 1999 (NTP99) which revised the licensing regime, empowered regulators, affirmed and expanded competition in the sector. Any doubt about the critical role of the regulatory environment in creating and nurturing markets has largely disappeared.
3G and BWA guidelines suggest that DoT has forgotten those lessons. India’s regulators and policymakers are once again picking winners rather than allowing markets or users to do so. Indeed, in an unprecedented letter to the Business Standard, the head of Wireless Planning and Coordination wing (WPC) argued strongly that TDD technologies (like BWA) were superior to FDD technologies (typically, 3G).
3G is older and offers full mobility. WiMax, conceived as a wireless substitute for DSL broadband, is provided by operators who own fixed line infrastructure (like BSNL). New versions of BWA, the 802.16e, offer full mobility and are being deployed worldwide (in Italy, for example). While 3G has matured, the relatively new mobile BWA scores over many wireless technologies since it can provide connectivity without the receiver being direct line of sight of the base station. BWA handsets and modem, it is true, are costlier and heavier — but this disadvantage over 3G will decrease when more deployments can deliver economies of scale. Like computers running Microsoft Windows and Apple’s Mac operating systems, 3G and mobile BWA have their own strengths, but are functionally similar.
But the DoT guidelines for auction of spectrum for these two competing technologies prescribe a reserve price for BWA which is half that for 3G and a spectrum slot (20MHz) that is twice 3G’s (2x5 MHz). The BWA reserve price advantage over 3G is therefore quadrupled.
The amended guidelines have further removed important restrictions on BWA in the original. Like 3G, BWA operators are not limited to data, their obligation to cover 25 per cent of rural ‘short distance charging areas’ within two years has gone. The obligations for BWA and 3G are identical for the first five years.
Such different provisions may still have made sense till October 2007, which is when ITU included BWA services in its IMT standard for 3G. BWA stakeholders had lobbied hard with governments of ITU member countries, including India, for this outcome since it enabled them to participate in international 3G deployments and spectrum auctions. Thus, recently when United States’ Federal Communications Commission (FCC) auctioned the 700 MHz, winners were free to deploy any technology, 3G, BWA or any other.
TRAI recently revised its original recommendations following the inclus ion of BWA in ITU’s IMT standards. In contrast to DoT guidelines, TRAI wants BWA spectrum be auctioned in units of 5Hz, like WCDMA, the 3G route for GSM. (EVDO the 3G option for CDMA mobile players needs 1.25 MHz).
TRAI had recommended a lower reserve price BWA spectrum on the grounds that the average price paid for BWA spectrum in recent years has been lower than that of 3G. This linkage is flawed. Reserve price and final bids are two separate issues.
Auction behaviour is a complex matter. Even so, the final bids in an auction should depend little on a low reserve price if the number of bidders exceeds the spectrum slots. They will reflect the relative perceived value of 3G and BWA. But if the interest in bidding is low, the ‘winner’ pays the reserve price. The final price is a bargain, if reserve price is low, and a rip-off, if it is high.
And, DoT’s unorthodox guidelines will deter many bidders. Prospective foreign players face additional barriers: They must pay $400 million for a 2G licence and comply with whimsical norms for mergers and acquisitions. In many circles, spectrum slots may exceed the number of bidders and the spectrum will attract the reserve price. With 3G reserve price per MHz effectively quadruple of BWA, the latter is at a distinct advantage.
We have seen several controversial decisions recently (for example, spectrum for dual technology use or the hundreds of mobile licences awarded recently at bargain prices). We could expect some more ‘creative’ decisions after spectrum auctions allow one side to gain advantage.
Low reserve prices all round could attract more bidders. They could prevent the overpricing of a low value licence that BWA is implied to be. Markets can settle this. However, different reserve prices for fierce competitors like 3G and BWA are indefensible. In a regulatory regime that professes technology neutrality, there should have been a single auction for both 3G/BWA spectrum to be used for wireless broadband. This may be unrealistic at this advanced stage. However, it may still be possible to contain most of the potential damage. For this, the guidelines must be amended to restore parity in reserve prices. Otherwise, they can severely distort the market and bias technology choices. This is bad for competition, bad for India’s broadband plans.