Telecom Bill fails to decolonise

The Indian telecom sector is headed towards a change in the form of the Indian Telecommunications Bill (draft Telecom Bill), which seeks to replace the Indian Telegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933, and the Telegraph Wires (Unlawful Protection) Act, 1950.

However, unless there is serious thought given to the underlying principles of the bill with respect to state ownership of spectrum, it is likely to be a case of old wine in a new bottle.

The Indian State exercises control over all forms of wireless communication in India, mainly through the Indian Telegraph Act, 1881 and the Wireless Telegraphy Act, 1933. Wireless communication has been broadly defined to mean any form of communication over electromagnetic waves.

Electromagnetic waves are essentially invisible forms of energy that travel through the universe. As such, they simply exist in the universe, similar to light, sound and air. Requiring a license for communication over electromagnetic waves is in a way akin to requiring a license for communication over sound waves, that is, for the act of talking.

In this regard, it is important to understand the context in which the British Indian State chose to regulate communication over electromagnetic waves.

As freedom fighters from across the subcontinent increasingly sought to coordinate and communicate with each other in the mass movement phase of the Indian freedom struggle, the British Indian government equally sought to control any and all means of communication. Further, the Indian State Broadcasting Service was facing substantial revenue losses due to the unlawful possession of wireless telegraphy.

The Indian Telegraph Act and Wireless Telegraphy Act were enacted in this background, to control the democratic energies of the Indian people, and further safeguard the British Indian State against revenue losses.

The Indian government continues to exercise similar control over all forms of communication till date, and as such, the legal framework in the telecom sector has never been effectively decolonised. 

The Indian Supreme Court in the 2G judgment, operating under the assumption that the Indian State is the owner of spectrum in India, prioritised revenue maximisation through auctions. As a result, auctions have become the primary and preferred mode of spectrum allocation in the post-2G judgment era. This is regardless of the fact that the Supreme Court, in a subsequent presidential reference, clarified that the decision in the 2G judgment is on the limited aspect of the distribution of spectrum from September 2007 to March 2008, and does not establish a general principle for the spectrum allocation.

This continued dogmatic view towards revenue maximisation through the auction of telecommunications frequencies is a post-colonial phenomenon.

Globally, countries have moved to a far more flexible and permissive approach for the grant of spectrum, an approach rooted in their desire to empower their citizenry through connectivity. For example, in Germany, certain bands of frequencies are assigned as ‘general assignments’ for use by the general public or a group of persons. The decision to assign administratively or by way of an auction is taken on a case-to-case basis, and linked to the policy goals of the government. In fact, Germany has decided to open 5G spectrum to telecom providers on a rolling basis, focusing on quick roll-out of services over short-term revenue maximisation.

Even when conducting auctions, regulators the world over give significant weightage to other policy goals over revenue maximisation. The FCC (in the United States), as an example, grants ‘bidding credits’ to small businesses and rural service providers, to even their playing field with large corporations.

The government of India itself recognises that auctions and revenue maximisation cannot be the only policy goals while allocating spectrum.  Wireless spectrum for technologies such as Wifi and RFID are de-licensed and available to all (rightly and in line with international consensus) without any concern for revenue maximisation. Technologies such as broadcasting and VSAT continue to operate on administratively allocated spectrum (granted annually).

The publicly available draft of the Indian Telecommunications Bill (draft Telecom Bill), remains consistent with the colonial approach of previous legislations. The language in the draft Telecom Bill effectively mirrors that of the Telegraph Act and the Wireless Telegraphy Act, with limited updates to reflect the technological advances over the last 100 years.

It restates the Central government’s exclusive authority but creates limited circumstances in which it can assign spectrum outside the auction framework.

It is key for the Indian State to revisit its priorities when it comes to spectrum allocation. In our view, the priority ought to be citizen empowerment through e-governance, and access to information and know-how, resulting in social justice and economic development.

Instead of limited powers for the grant of spectrum outside the auction framework, it is important at this time to examine whether auctions are truly the best solution for India and should even be considered as the primary mode for allocating spectrum.

Auctions certainly bring immediate financial value to the government. They help reduce administrative discretion, with the underlying intent of reducing bias and corruption. They also create upfront cash flow for the State.

However, this model imposes high upfront costs on telecom operators. Telecom companies are expected to participate in expensive auctions to ensure access to the very building block of their business, that is, spectrum, thus leaving them with limited residual capital resources to spend on setting up infrastructure and providing services. As a result, the effective provision of wireless services is at risk due to exorbitant spectrum prices, particularly in rural communities since cash-strapped telcos are likely to prioritise urban markets. Studies indicate that there is a significant correlation between high spectrum prices and reduced network speeds, as well as limited coverage.

Additionally, there are potential hazards to network investment due to high spectrum fees. These costs may diminish the available investment capital or result in higher debt levels, which, in turn, will increase the expense of obtaining additional funding. This further translates to poor service issues for consumers, something each of us has experienced through ‘call drops’.

A design focused on revenue maximisation does not give preference to bidders with better rollout ability, higher quality of services, or intent on focusing on underserved markets. This was specifically seen in the 3G auctions, where high spectrum costs put immense financial pressure on telcos, resulting in limited roll-out of 3G services. Consequently, the launch of 3G services never fully materialised, and service providers quickly migrated to newer spectrum bands such as 4G. One wonders if events may have played out differently had 3G spectrum been allocated on an administrative basis.

It also results in the selection of market players with deep pockets - who are potentially interested in speculative bidding to either resell spectrum or to crowd-out the competition - over new innovative businesses that can improve services or provide access to new technologies.

Prioritizing the maximization of State revenue from spectrum may have an unfavorable socio-economic outcome. In the Indian context, the focus should be on solving telecom connectivity in rural and remote areas of the country over prioritising immediate revenue maximisation for the State. The teledensity in rural India continues to remain as low as 58.44%, even as teledensity in urban India has skyrocketed in the past few decades.  Further, the connection between the expansion of telecommunication services and economic development has been extensively recorded, with one World Bank study recording a GDP increase of 1.38% for every 10% increase in broadband penetration.

Alternative allocation methods can be useful tools to promote better services in rural and inaccessible areas. The government has currently allocated ₹ 1.39 lakh crores to ensure the availability of 5G network to remote areas, a cost that can likely be reduced by reducing the costs of entering the operator market in India. This approach is not unknown to the Indian government. For example, in the electricity sector, operators do not require a license to generate and distribute electricity in rural areas.

In fact, it is connectivity that will ensure effective long-term empowerment of Indians living in rural and inaccessible areas, by providing them with access to education and employment opportunities. Expansion of economic opportunities through connectivity (such as through access to digital payments, and upskilling or marketing opportunities available on the internet) can be a powerful tool of social justice, and aid the State in bridging inequalities across India. By prioritising short-term revenue maximisation, we may just be killing the goose that could one day lay the golden egg.

We are not of the view that the State should abandon revenue generation as a focus for the allocation of natural resources. Instead, focus on administrative allocation for new technologies, innovative bidding models based on revenue sharing, inclusion of effective rollout (including rural rollout) targets in license conditions, and prioritising policy goals such as increasing competition, improving service quality and lower costs, over mere headline auction numbers, may better serve India at large. 

The spectrum allocation regime which is put in place under the draft Telecom Bill should therefore, in our view, give the State greater flexibility to choose the mode of allocation. The role of the State in this regard should be to regulate spectrum usage to promote the best interest of the people.

The Indian State today has the opportunity to successfully roll back the colonial monopoly over the right to freely communicate over electromagnetic waves, maximize the benefit of usable radio spectrum, and, in parallel, ensure the empowerment of its citizenry.

Anand Prasad is a Senior Partner and Mriganki Nagpal is a Senior Associate at AP & Partners.