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10 Jul 2017

Telecom infrastructure: Here is why Centre must abolish irrational fees, not interconnection charges

An inter-ministerial group (IMG) is currently reviewing the financial health of India’s telecom sector. This follows a steady fall in sector revenues since Reliance Jio launched its 4G services last year.

An inter-ministerial group (IMG) is currently reviewing the financial health of India’s telecom sector. This follows a steady fall in sector revenues since Reliance Jio launched its 4G services last year. Jio’s competitors reportedly lost roughly Rs 80 billion (Rs 8,000 crore) in the first six months. Analysts and lenders have warned of telecom companies defaulting on loans or becoming unviable. However, Jio’s entry brought important benefits and its cut-throat pricing provided a much-needed boost to broadband usage. The IMG’s challenge is to recommend how India can boost investor confidence, without slowing broadband growth. For this, it must treat the arguments of Jio and its competitors with sympathy and yet, healthy scepticism. The pressure on revenues is real. Incumbent companies, mainly Airtel, Vodafone and Idea, are badly hit. Jio’s free 4G services forced them to drop their prices to protect their market-share. The sector lost 9% in revenues in the immediate quarter after formal launch. The telecom operators also face Rs 4.8 trillion in debt.

The government too has suffered as it collects roughly 30% in levies such as licence fees, spectrum usage charges, services tax, etc. Department of Telecommunications (DoT) has reportedly lowered current year’s revenue targets by 40%. Fearing a poor response, it has postponed the next auction of spectrum. However, internet access in India is the cheapest ever, with tariffs down over 50%, and thanks partly to Jio, smartphones are cheaper. The cost of being online has fallen steeply and monthly broadband usage — barely 500 MB less than a year ago — is now 1,200 MB.

More people are using Facebook, Twitter, WhatsApp, shopping online, paying digitally and using hundreds of apps for work and pleasure. This is a substantial achievement, showing what affordable data can achieve. Yet, there are large gaps in access and capacity. While globally, India is №2 in terms of internet users, it is №1 in those unconnected. According to a recent report by OpenSignal, broadband speeds in India are among the lowest and trail even neighbours, Pakistan and Sri Lanka. Telecom Regulatory Authority of India (TRAI) estimates India needs millions more Wi-Fi hotspots.

According to sector specialist body, GSMA, of the India’s one billion mobile connections in March 2016, only 61.6% were unique users. So, mobile connectivity is not universal. Filling the gaps will take an estimated Rs 2.5 trillion and therefore. well-financed operators. However, imposing price floors is wrong way to improve operator finances. Doing so will deny critical commercial flexibility to new entrants, force higher prices on customers and hurt data growth. Any late entrant, e.g. Jio, can rarely succeed without being price competitive. Incumbents were naïve to ignore that Jio could be willing to pay a steep price to dislodge competitors.

However, Jio’s proposal to abolish interconnection usage charge (IUC) and to move to a “bill-and-keep” regime is flawed. Currently, when a telephone subscriber makes a phone call to someone on a different network, the destination network receives an IUC at the rate of `0.14 per minute. Removing the IUC, as Jio advocates, could simplify settlements, if equal number of calls travelled in either direction. However, they do not. Being new, Jio has fewer subscribers than its main competitors. It has more outgoing calls than incoming and it pays more in IUC than it receives. Most operators recover IUC costs from call tariffs. Jio can’t since its customers enjoy free voice calls. So, the ‘bill-and-keep” regime subsidises Jio at the expense of its competitors.

The IUC is a legitimate payment for costs incurred in terminating a call on the destination network. Admittedly, incumbent players can abuse this. They can thwart competition by making interconnection difficult or expensive. To prevent this, TRAI and other leave almost all other tariffs to markets; but rarely, IUC. TRAI fixed the current IUC in 2015. Regulators typically compute IUC by modelling costs incurred in interconnection including a fair return on investment. There is good to reason to review IUC periodically, since the underlying costs are not static.

However, abolishing IUC is short-sighted and could hurt rural areas the most. Deploying and maintaining rural networks is expensive. For instance, poor access to electricity forces dependence on diesel which is expensive and difficult to store or secure. Low demand for services and poor revenues are the norm as incomes are low and businesses, weak. Rural users usually receive more calls than they make. This makes IUC an important source of revenue for investors in rural networks. Indeed, regulators have sometimes used IUC to encourage investments in rural networks. Abolishing IUC would further weaken the business case for rural broadband.

The government can do much to attract the large investments needed in the telecom sector without distorting competition or hurting data growth: It can remove the irrational regulation that discourages investments, especially large ones. For instance, most countries now auction spectrum to deal with its increasing demand. However, few countries that auction spectrum also impose high licence fees and spectrum usage charges like India. Further, the government designs spectrum auctions to maximise revenue. These forced costs are worsening operator debts, and threatening their viability.

Government levies distort India’s telecom and broadband markets in other ways. The large fees form the basis of a demand from telecom operators for a similar burden on Over-the-Top (OTT) services that compete with their services in any way. The so-called “same service same rule” advocated by them, would require licences and fees for internet-based telephony and messaging services like Skype, WhatsApp, etc. This could be counterproductive since these services are key drivers of data usage and of future revenues of the sector.

Removing the burden on the telecom operators would end the parity argument besides enhancing data usage and the finances of incumbent operators. Abolishing irrational fees would admittedly, hit government revenues in the short run. When the revenue sharing regime was introduced in 1999, many saw it as a bailout for telecom companies. It had replaced the licence fees that operators had committed to the government in auction, but were unable to pay. In subsequent years though, it raised much more revenues for the government than it had sacrificed then.

Taking a cut in revenues could turn out similarly if it leads to a sound and viable telecom infrastructure that virtually all sectors of the economy can exploit. The increasing demand for digital infrastructure and services is a massive commercial opportunity. Communications markets usually thrive with rational and predictable rules. The IMG could make an opportunity out of the current crisis, if it can help remove current distortions and align incentives of all stakeholders.

This article was originally published in Financial Express on July 1st, 2017.

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21 Jan 2016

Digitising India: Hopes, Expectations and Challenges

Digital India

Originally posted on: Tele.net.in

The Indian telecom industry has an important role to play in fulfilling the objectives of the “Digital India” initiative, owing to the deep penetration of operator networks. However, several challenges persist in reaching out to rural consumers, for both broadband and wireless mobile connectivity. Government intervention is needed to resolve the structural issues pertaining to the telecom infrastructure industry. Industry experts share their views on achieving the objectives of Digital India, including their expectations from the government and the way forward…

What is the current status of digitisation in India? What has been the progress on the Digital India initiative?

Rajesh Chharia

The objective of Digital India is relevant, but our teams are not well-prepared to take up this challenge. The Digital India programme will become a success only when broadband reaches every individual in the country. Policy and technology should move together to realise this vision. It is important to understand that a government’s objective, when drafting a policy can never be making revenues; instead, development should be central to the policy.

For instance, in 1995, when mobile phone services had commenced, they had not matured because the cost of licences was very high. In such a scenario, the government introduced the concept of adjusted gross revenue, which gave an impetus to the industry.

Inderpreet Kaur

India is set to be one of the top five nations in terms of fixed-broadband subscriber additions over the next six years, among the countries tracked by Ovum. On the mobile front, India is already the second-largest in terms of the number of mobile broadband subscribers. The country had 163 million mobile broadband subscribers at the end of June 2015, second to China, which had over 746 million mobile broadband subscribers. Ovum expects India to lead the Asian mobile broadband market with the largest base of 3G subscribers, taking 3G penetration to over 50 per cent from 11 per cent at present.

India’s broadband prospects have improved as a result of the government undertaking the National Optical Fibre Network project and the Digital India programme. The government has introduced multiple initiatives under the Digital India programme, including migration to next-generation networks and ubiquitous broadband coverage. The government has been quick to secure support, not just from local partners like the Bharti Group, Reliance Industries and Tata Communications, but also from international technology giants, in order to fulfil its digital agenda. While industry participation is important, we cannot overlook impending issues on the regulatory side. It is imperative for the government and the regulator to address key issues such as introducing competition in the access networks and difficulties with right of way for private operators, and the long-standing issues related to spectrum availability.

Dr Mahesh Uppal

There is still a long way to go on the digitisation front. The key records of all government departments and agencies have not been digitised yet. Even in cases where digitisation has been carried out, the records are not readily and conveniently accessible to those who they pertain to or need them. Further, not everything that the public needs information on is related to government functioning. There is a lot of information that should be available online so that people can make well-informed decisions. For instance, a prospective home buyer can check the ownership of the property he intends to buy if all land records in the country are digitised and made available online. It is this information – that relates to people’s lives and livelihoods – that can transform decision-making. However, progress on this front has been incremental rather than transformational.

What role will telecom industry stakeholders (operators, vendors, infrastructure providers) play in realising the objectives of the Digital India programme?

N.K. Goyal

Mobile has been at the forefront of the digitisation process, as it is the platform for providing mobile internet and mobile applications for e-governance, banking, health care, etc. Fixed line operators have been providing broadband internet and other e-services. Therefore, the telecom industry has been the biggest supporter and provider for Digital India, followed by the IT industry.

Inderpreet Kaur

Operators and vendors have a crucial role to play, not just by providing the underlying infrastructure but also ensuring affordable access to services in a price-sensitive market like India. The huge digital divide in the country and low digital literacy have added to the challenges faced by both operators and service enablers. Operators need to work around the cost-effective deployment of broadband networks in order to reach a wider base of consumers.

Dr Mahesh Uppal

The telecom industry is an integral part of the programme and has a significant role to play in terms of extending connectivity and providing content, which will be a part of the services under the programme. The industry also has access to a lot of international information and experience regarding how to make the programme work more efficiently, and has a far better grip on the way markets function. The Digital India initiative will not succeed if it is implemented with an essentially bureaucratic mindset. It requires a serious market strategy and an understanding of how solutions can be created, implemented and made available to people. Therefore, there is a need for a creative and constructive partnership between the government and the industry in order to realise the goals of Digital India.

What are your expectations from the government in accomplishing the Digital India initiative?

Rajesh Chharia

Rural India is very price-sensitive; therefore, imposing any kind of licence fees in the initial period may not be advisable. It is better to impose the licence fee after allowing some time to the industry to grow. A relevant push for small players is also necessary. It is important to understand that the top five players alone will not be able to provide broadband services to the entire country. We have to bring in all stakeholders to accomplish this. The government has therefore come up with a consultation paper on the implementation of BharatNet, where it is looking at the possibility of involving local cable operators as they already have the necessary infrastructure in place and understand the needs of the local people better. In order to develop a broadband ecosystem in the country, it is important to not only focus on application and content creation, but also to hand-hold people in rural areas for dealing with viruses, spam and mailing.

N.K. Goyal

The government has been coming up with very good policies and initiatives; however, successful implementation will play an important role. Initiatives such as Make in India have been attracting large investments. But a few issues in the handset segment still need to be sorted out. For instance, the IMEI number for each mobile device should be delivered by government agencies.

Meanwhile, in the provisioning of wireless services, the high price of spectrum has impacted pan-Indian coverage. As operators invest heavily in acquiring spectrum and setting up networks, service affordability has been impacted. This, in turn, will hinder the process of achieving Digital India’s objective of providing universal access to all.

Inderpreet Kaur

Government support and participation will be necessary on multiple fronts, from ensuring adequate public funding for the programme to working out various business models in order to take broadband to rural and low-income households through subsidised services. There are many challenges on the regulatory front, and the government should address these in order to create a level playing field for interested participants.

Dr Mahesh Uppal

One key expectation is for the government to have a creative engagement with the industry. It should not only actively seek information from the industry, but also be willing provide it. It needs to put an effective consultative mechanism in place, which would allow both sides to discuss their concerns and address them effectively. The industry and the government must align their incentives. For instance, the government cannot simply expect the industry to do all that is necessary for a digital India without providing any support. Similarly, the industry must not expect that the government will function as simply as a company, because governments have to work with a different agenda, priorities and constraints. Such an understanding is a critical step towards effective engagement.

What are the issues and challenges that need to be resolved in order to create broadband highways and enable universal access to mobile connectivity?

Rajesh Chharia

One issue is that the policies do not match the technology. Second, the government is imposing unnecessary licence fees, which hampers industry growth. There is also a lack of faith in the idea that last mile access can be provided by cable operators and small service providers. Lastly, the government should not be focusing on making revenue from the services because its sole objective should be development.

N.K. Goyal

The government’s attempts to push telecom operators to provide services in rural and uncovered areas by deploying various incentives and schemes have witnessed little success. Thus, more innovative models are necessary for achieving this objective. For instance, IP providers and internet service providers can be brought under the ambit of the Universal Service Obligation Fund. Meanwhile, equipment manufacturers or rural authorities can be authorised to deliver local services in rural areas. For a country like India, with a deep-rooted political system and administration, the challenges are many; however, state-level intervention can help in addressing them one by one.

Dr Mahesh Uppal

The country needs to mobilise a vast amount of resources to ensure universal access to broadband and mobile connectivity. The demand for broadband is uneven and still not strong enough to incentivise the industry in all parts of the country. The majority of the rural population may not yet see sufficient value in broadband to justify paying for the service. Since the demand has yet to mature across the country, the exercise of delivering broadband to all will have to be supply led. The industry needs to develop relevant content and design smarter business models to strengthen demand for broadband. There is a need to offer appropriate and affordable entertainment to people in local languages. This would require investments with a long-term horizon in sight because returns may not be visible in the short run.

The other issue is that the government needs to recognise that physical infrastructure would require a fair amount of investment. Further, there is a significantly high regulatory cost imposed by the government on the industry. The government should be willing to forego its short-term revenues (such as the levy on spectrum and licences) in order to ensure universal broadband access.

*image courtesy mygov.in
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13 Jan 2016

Free Basics: Regulatory principles versus Ideology

Free Basics

As published on Firstpost.com

Should Facebook’s Free Basics initiative be stopped immediately? A response to this question cannot depend on claims, either of its promoter – Facebook – or its critics. And, the issue is not whether Facebook’s goal is to expand internet access to the poor or to further its business. It is whether there is any evidence that Free Basics violates any existing rule, harms consumers or other players in the market. An economic regulator, such as Telecom Regulatory Authority of India (TRAI) will need to settle this, using data and well established tests, not petitions that support or oppose Free Basics.

Yet, several liberals, and even lawyers, want TRAI to do just this. They have pre-judged Free Basics and want it banned simply on suspicion of possible future mischief. They offer no evidence of harm to users or market-players – in India or in any other country where Free Basics is on offer.

However, critics’ misgivings and allegations deserve a response.

It is alleged that Facebook’s initiative will split the internet since Free Basics users will have little reason to explore beyond the few Facebook controlled free content. There are several reasons why this is far-fetched.  The content on Free Basics is simply too small and unrepresentative. Free Basics – even if it expands 10 times – would be a negligible part of roughly billion websites on the Internet.  Further, Free Basics offers no video, which is around 60 percent of internet traffic today, and expected to rise to over 80 percent in about 3 years. (Its technical guidelines explicitly discourage “high overhead” content that consumes too much bandwidth and may not work on low cost handsets.) To suggest that users will be satisfied with “unpopular” or “vanilla” internet content simply because it is free, is absurd. More so, since the other content, even if it is priced, is a proverbial click away.

Critics suggest that the partnering mobile operator gets to play a monopoly or “gatekeeper” role by making it impossible or expensive to access content not included in the Free Basics package. This too defies reason when applied to India’s telecom markets, where there is more competition than almost any country. While data speeds are admittedly, low in India, there are multiple ways to access the web – through private and government owned fixed and mobile operators, cable operators and other standalone ISPs. As for content on Free Basics, it is available with or without subscription to it. Far from being a restrictive gatekeeper, the operator offering Free Basics is one of the many doors to the internet. Any player with delusions of being a gatekeeper, risks losing business.

Some critics find it difficult to accept that the mobile operator offering Free Basics receives no money to do it. According to them, such an operator would have no commercial incentive to offer free services. They ignore that given the relatively small size of data markets,the operator, especially one without sufficient revenues from data services may see it differently. It might see Free Basics as a way, eventually, to bring its subscribers to popular content, for which data charges do apply.

It is suggested that Free Basics violates the concept of net neutrality which requires all players to treat all content at par. One can look at this in several ways. For a start, India currently has no such rule or legislation. Secondly, a country like US, which does have such a provision, still does not see free access to selected websites (“zero rating”) as necessarily a violation.

A separate issue is the relevance to India of an inflexible net neutrality legislation. Less than 20 countries have it.  Several developed and developing countries, including India, currently permit some differential pricing for web content and have not incurred noticeable damage. Also, virtually no country has an internet market like India’s. Almost all have extensive fixed line networks and little competition for access. India relies predominantly on wireless and is therefore constrained for network capacity. And, it has abysmally low (20 percent) level of internet penetration. The critics have offered no serious evidence that consumers in countries with net neutrality regulation are doing better or that those without it, are doing worse. Therefore, even if Net Neutrality – no blocking, no throttling or paid prioritisation of internet traffic – is a sound principle the case for copycat rules is hardly clear cut.

Several critics have raised concerns related to privacy and security. It would be naïve to dispute the importance of these issues. However, they are generic to almost all popular internet content, cloud services, mobile apps, etc.

Several critics feel Free Basics is unlikely to work in expanding internet access to the poor. They believe offering a free data package without restrictions is a better idea. They may well turn out to be right and Facebook wrong. However, this is hardly reason for a market regulator to bar any alternate approach.

This is not to suggest that mischief by market players is an impossibility or that consumers may never be at risk in future. TRAI cannot afford to ignore market developments. However, TRAI’s responsibility is not to pick winners- or ease out players on suspicion! – but to protect consumers by ensuring that markets work effectively.  It is obliged to act proportionately after determining the nature, size and likelihood of possible harm to consumers or markets.

Stopping Free Basics, without any data or subsequent analysis, is simply bad regulation.

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11 Mar 2015

Spectrum auction: Modi government’s approach is out of sync with Digital India plan

*As featured on Economic Times on March 8, 2015

- By Mahesh Uppal

By Friday evening, bids in the ongoing spectrum auction had reached Rs 77,000 crore, or over $12 billion. They could rise substantially before the auction concludes. The bids are great news for the central exchequer. Regrettably, the bids also suggest the government’s approach to spectrum is out of sync with its ambitious plan for a Digital India. More on that later.

Despite the spectacular bids, the government would be nervous about the decision of the Supreme Court which has stayed the publication of auction results and the award of spectrum to winners. GSM operators have challenged some of the provisions of the auction. We will know more on the next hearing on March 26.

The spectrum being auctioned includes frequencies in the 800, 900, 1,800 and 2,100 MHz band. Except for the 2,100 MHz band, almost all of the spectrum being auctioned for any service area, or circle, is in use by operators whose 20-year licences will expire in the next few months.

No Surprises There

The high bids are not surprising. Several companies face unenviable choices as they have large investments and revenues to protect. For instance, Reliance Communications could have to discontinue services in up to seven circles, if it can’t win back its spectrum. The auction has bearing on up to 75% of Idea’s revenues. Vodafone faces serious pressure in six circles. Reliance Jio, which has a nationwide 4G spectrum, has deposited the highest earnest money. It can wrest spectrum from current incumbents as well as raise their costs of acquiring spectrum.

It is easy to understand the rising bids for 900 MHz spectrum. It is by far the most valuable because lower frequency signals can cover longer distances and therefore require fewer telecom towers. The spectrum also supports 3G data services. It was allocated first when mobile services were launched 20 years ago. Early entrants would be especially keen to retain high-income subscribers acquired when call rates were several times higher than today. This spectrum thus allows operators to combine their immediate commercial goals with their future ambitions in mobile broadband.

The auction of 2,100 MHz (3G) spectrum saw less action in the beginning of the auction. But this is changing and bids can be expected to rise further. This spectrum is globally harmonised and companies have repeatedly sought more 2,100 MHz spectrum. They had offered to accept partial assignments in areas where defence needs some of it and to bid for spectrum before it is fully vacated. So, one can expect more interest in 2,100 MHz once bidders take a final call on the price they are willing to pay for the 900 MHz spectrum.

The demand for wireless spectrum reflects the fact that 95% of Indian users rely on mobiles for telephone calls and internet. Further, no other country has more operators in any service area (called circles in India). The limited spectrum must cater to more users as well as operators than elsewhere.

Thanks to the high competition, bids may not cause a dramatic rise in rates, though the prices are climbing steadily in recent months. However, the operators can be expected to prioritise high paying customers over growing markets — especially weak ones e.g. rural or broadband services where much more investment is needed. This is no less worrying.

What about Digital India?

The high sums do not mean spectrum auctions are a bad idea. On the contrary, auctions are the only transparent way of dealing with a demand for spectrum that far exceeds its natural supply. However, better auction designs are possible and eminently desirable. For instance, regulators often mandate that winners deploy broadband services in a prescribed short time or face penalty. This could have resulted in lower bids but better use of spectrum without compromising on transparency.

India’s overwhelming reliance on wireless is all the more reason to manage spectrum strategically. Fortunately, unlike other natural resources like coal or water, it is totally inexhaustible. Its use today has no bearing on the interests of coming generations. This allows much greater flexibility in managing it.

It is self-defeating to design auctions solely to maximise upfront revenue. Unfortunately, the government has chosen poorly. It went against the advice of a statutory regulatory body on critical aspects of the auction. It failed to accept the recommendation to auction more 2,100 MHz spectrum despite declaring that it had an agreement that defence would release more soon. It couldn’t deliver on the spectrum sharing and trading guidelines due in December last. That would have eased the pressure on bidders. The government seemed to have prioritised its revenues over a coherent regime for spectrum.

A government that believes a “Digital India” can be an engine of growth and governance cannot justify artificial barriers to efficient use of scarce spectrum. The success of Digital India is critically dependent on how well India manages the allocation and price of spectrum.

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08 Jan 2015

What to do about Net Neutrality?

By Mahesh Uppal

The Mobile operator Airtel’s recent decision – hastily withdrawn – to charge more for internet based telephony services goes against the principle of Network Neutrality.

The broad principle of Network Neutrality makes sense. It attempts to impose on internet service providers (ISPs) an obligation similar to the one on other utilities like power, roads, railways, etc.  It requires that a service provider not discriminate between users or the type of usage. So, just like it is unacceptable if a player who runs railways or roads, determines if, when or where you travel, so should an ISP not have a say in your use of the internet.

India, like most countries, does not mandate Network Neutrality explicitly.  However the licences of telecom operators like Airtel, Vodafone, Bharat Sanchar Nigam Limited (BSNL) etc. who provide the bulk of access to the internet require that the holder “shall not in any manner discriminate between subscribers and provide service on the same commercial principle”.

The Network Neutrality debate acquired new energy last November, when US President Obama reiterated his strong support for the principle. He said: “We cannot allow Internet service providers (ISPs) to restrict the best access or to pick winners and losers in the online marketplace for services and ideas.” He opposed attempts at blocking websites selectively, throttling or slowing down some traffic and paid prioritization of traffic. He presumably had in mind companies like Comcast, AT&T and Verizon who own and dominate the underground cable and optical fibre lines that most Americans use to access the internet. The latter have argued that the investment needed to accommodate increasing traffic, especially video, was becoming unsustainable. They want the right to be able to prioritize some types of traffic. Obama, like other supporters of Network Neutrality, sees such prioritization as potential abuse of dominance. He called on Federal Communications Commission (FCC), which regulates telecommunications and broadcasting in the US, to devise Network Neutrality rules.

Are Network Neutrality rules relevant for countries like India? Is abuse of market power by network operators rampant, serious or imminent? Is Network Neutrality relevant in cases where the reach and capacity of networks is limited?  Could the rules be an overkill? Should Network Neutrality be recommended or obligatory? Should we treat it akin to a constitutional right, for example to life, property or free speech?

In my view a doctrinaire or rigid approach to Network Neutrality is illogical and risky. This is especially true for developing countries like India whose data or Internet markets differ qualitatively from those of the US. In India, no company providing internet access has anything close to a monopoly in the market.  Fixed line market is admittedly dominated by BSNL. However, the latter has far fewer subscribers than wireless operators – on whom a majority of users rely for access to the internet.

There is another important difference between the US and India. The predominant mode for access to internet in US is fixed line and in India, wireless.  It is far easier to expand capacity of fixed networks in US than the wireless ones in India. Increasing the capacity of cable and fibre networks depends mainly on availability of funds. However, for wireless networks funds alone are insufficient. It depends on availability of needed spectrum and the willingness of government to release it. In the case of India, operators cannot buy or lease it from current users of spectrum.

Network Neutrality therefore implies different burdens for fixed and wireless players as well for players with and without market power.  So while a government or regulator could require a dominant fixed line player to expand capacity to accommodate increasing levels of traffic it could not realistically require capacity-strapped wireless operators to do so.

In India an added issue in mandating Network Neutrality is the huge regulatory costs – licence fees, spectrum usage charges – charged from network operators amounting to roughly 30% of their revenues.  VOIP and other Over-the-Top (OTT) services pay no such fees despite the fact that phone services like Skype, Viber etc. or messaging services like WhatsApp are functionally similar – in some ways, even more powerful than the corresponding services of mobile operators. This ‘unfair competition’ poses a different type of argument against network neutrality in India.

A key dichotomy in implementing Network Neutrality is that intended beneficiaries could potentially be victims too. While it seeks to assure smaller players of equal access to networks, it provides no guarantee that bigger players, especially social media with its much wider appeal and sophisticated technologies, will not grab bulk of the bandwidth, as many believe, they do currently.  This is especially true for wireless networks.

It is notable that bigger players like Facebook, Google etc., which are strong advocates of Network Neutrality are making exceptions themselves. In many instances, in India and in other developing countries, they have made deals with mobile operators that favour their services over others’. In some cases, for example, access to the services of one player, say Facebook, is free, but not for websites or services of players, without comparable commercial clout to enter into similar arrangements.

In my view, the central issue in public networks is to fair access and not the sanctity of the Network Neutrality principle, per se. Sometimes Network Neutrality might hurt more than it can help. This is an issue in almost all types of networks.  For instance, in case of road networks, big trucks are treated differently during peak traffic hours. There are toll roads for users who want to save time. In India, the “Rajdhani” and other trains exclude passengers from most stations on their route. In electricity, we have differential pricing for low and heavy users. Can we argue that these breaches of Network Neutrality are entirely unreasonable?

However, it would be patently unfair if all roads were toll roads or all trains Rajdhani’s. We cannot divorce Network Neutrality from the larger context of public policy.  ‘Violations’ from Network Neutrality must be the exception and not the rule.

Network Neutrality means ensuring that those who own or control networks behave reasonably. Such players frequently have incentives to favour certain type of users or usage that provide higher returns. Since network businesses have little or no competition, these players have the potential to abuse markets through arbitrary pricing. This can hurt users and sometimes thwart new entry to the markets.

It is these cases that economists call “market failure” where Network Neutrality is most important. It poses much the same questions that regulators face when deciding whether or not intervene in tariff setting or whether licensed operators must be mandated to serve rural areas, even if it is unprofitable to do so.

Network utilities have profound implications for public interest. Obama’s focus on ensuring no one is disadvantaged in their use of broadband networks in the US is no less relevant in India.  However, there is a big difference between the reach of broadband networks in two countries. The priority for India is to deploy the networks while for US it is to improve access to the broadband networks already deployed.  It would be counterproductive if poorly implemented Network Neutrality gave the operators an excuse to make it difficult or expensive to use popular services such as VOIP telephony. India must ensure that no sets of players carry unfair regulatory burdens for providing competing services and users of popular services have unbridled access to technologies that provide powerful and cheaper services.

Airtel’s approach to VOIP tariffs highlights the need for the government and the Telecom Regulatory Authority of India (TRAI) to collaborate on a model of Network Neutrality that is relevant for India.

*Views expressed here are personal

As featured on Thinking Aloud supported by IAMAI

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12 Nov 2014

Net Neutrality

I believe, Obama is broadly- but not entirely- right about net neutrality. ISPs – or telecom operators who are the bigger ISPs in most cases- should not in general be able to discriminate between different types of content or its creators.

However, the problem is when net neutrality is applied to wireless networks where capacity is a bigger issue because of spectrum scarcity. Wireless networks simply do not have capacities comparable to cable/fibre networks. India is a classic case where operators have a fraction of the spectrum that their peers in other parts of the world.

Developing countries need last investments in infrastructure. Net neutrality may be counterproductive if this became the excuse for operators not to expand networks to the large regions which are still uncovered.

In any case, there are several cases where content players, like Facebook, Google etc,- understandably supporters of net neutrality- are working with mobile operators to protect their commercial interests. They have arrived at arrangements, across the world, that would not be strictly in line with network neutrality.

The problem with net neutrality is at the edges. We all want free movement on roads but yet, can accept a limited number of toll roads. Similarly, we must be willing to accept that a fundamentalist position on net neutrality might hurt those whose rights we want to protect.

This is a challenge for regulators. They will need to balance consumer interest in content with their huge stake in growth and capacity of networks.

- By Mahesh Uppal

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28 Apr 2014

Khap Panchayats: Applauding the break in a 700 year old tradition

For the last 10 years I have lived in the state of Haryana, about 18 kilometres from the centre of New Delhi. It is one of the wealthier states of India and in 2011-2012 had the second highest per capita income in the country at Rs. 138,859. It also had the largest number of rural crorepatis (a crore is 10 million Rupees or about $165,000) – mainly Ahirs and Jats – in India.

Haryana has a large percentage of Gujjars and Jats, communities that were originally nomadic but now are in more settled communities and are recognised as Other Backward Communities (OBCs), a status given to them by the government.

Haryana also has the worst sex ratio in the country: 877 girls for 1000 boys. Much of this could be attributed to male child preference and female foeticide which has created a shortage of marriageable age women has resulted in brides being imported from the eastern states of India.

The state, like many Indian states, is a mixture of tradition and modernity. It is dominated by Khap Panchayats, or groups that are informal system of justice.

In the last few years Haryana and Uttar Pradesh (the adjoining state) have been in the news as young couples have flouted Khap Panchayat rules and married. They have been banished from their villages, their families humiliated, socially boycotted and even killed.

Khap Panchayats originated in times – almost 7 centuries agowhen there were no formal systems of governance or law as we know it now. Society organised itself into clans which were based on one large gotra(clan) or a number of closely related gotra (clans). Decisions were made by a Council of five elected members (Panchayat), by consensus.

In 2011 the Supreme Court declared illegal those Khap Panchayats that decreed or encouraged honour killings or other institutionalised atrocities against boys and girls of different castes and religions who wished to get married or had married. While this illegality was impossible to implement, it did harden the stand of some Khap Panchayats.

But this week, history was created when the five-member committee of the Satrol Khap Panchayat in Narnid village in Haryana ruled to allow inter-caste marriages. It also allowed marriages within 42 villages under its jurisdiction, which till now was banned. The Khap, however, continued to ban inter-caste marriages in the same and bordering villages and same clan marriages.

This decision is significant as it suggests a shift in how Khaps view society.

Satrol Khap Panchayat leader Indra Singh says that the decision was made due to the declining male-female sex ratio in the state and the changing social fabric of society. He admitted that the increased interaction between men and women could not keep them apart. Love relationships were common, he admitted.

For the first time, a woman was been appointed as a Khap member and there is a plan to have more of women’s concerns and points of view in the Khap meetings. There is talk of a youth brigade too.

This shift must be applauded by rights activists who came down heavily on the Khap Panchayats treatment towards love, marriage and treatment of women. The Panchayats were called many derogatory names. However, in a fast changing world, making sense of social norms takes time and patience. And it needs engagement.

The Khap announcement needs to be recognised and applauded. It would give an incentive for the Khaps to make more changes that reflect the changing reality of society.

I for one am applauding.

By Anita Anand

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23 Apr 2014

Fixed Fee is the Fix

On April 17, the Supreme Court upheld the government’s plea that Comptroller and Auditor General of India (CAG) was within its rights to audit the accounts of private telecom companies.

The problem with the judgment is not that Supreme Court is mistaken, but that the ruling deals with the symptom of a more serious problem viz. computing licence fees as a proportion of operator revenues. There is an obvious incentive to understate revenues and escape payments to the government.

This concerns the CAG. Telecom licence fees are a large contribution to the exchequer. And, as the Supreme Court has confirmed, CAG’s s mandate includes government receipts as well as expenditure.

However, CAG’s new task is huge and difficult. The telecom sector has revenues of roughly 22,000 crores (US$38billion) spread around 13 operators, in 23 circles involved. Further, spectrum charges are linked to the type and amount of spectrum held by the operator as well as the revenues generated.

CAG’s staff will face the same challenges that India’s tax inspectors do with income tax returns. Good ones will struggle to finish the tasks in time. Bad ones will help companies to escape payments. This is hardly an improvement; it’s more like business as usual.

It is not the Supreme Court or the CAG, but the Department of Telecom (DOT) that can solve the problem.

The way out is to delink fees from operator revenues. The answer is to set fixed fees. The amount could be a percentage of total sector revenues. DoT can set the percentage to enable government to protect its revenues.

How much would individual companies pay? A simple, logical and workable way to determine a company’s fee would be to divide the total amount of fees in proportion to the amount of spectrum held by it. So, a company which holds a quarter of spectrum allocated, would contribute quarter of the fees.

What if a company does not own spectrum? It would make sense to charge a prefixed nominal fee or to forgo it altogether, since all players without spectrum, even today pay a less than 5% part of the sector’s total fees.

A fixed fee will protect government’s interests without increasing the incentive for fudging. Indeed, it will encourage greater efficiency. Efficient companies will retain more of their revenues, inefficient users of spectrum as well as hoarders will pay more. That is good for the sector and for the overworked auditors.

Watch this space for details.

By Mahesh Uppal

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23 Apr 2014

India’s Third Gender Recognised: The Task Ahead

On April 15, India’s Supreme court, in a landmark ruling, recognised transgender people as a third gender.  In Hindi, transgenders are called hijras.

Four years ago I was at a meeting on transgenders in Mumbai. I was asked if I would share a room – with a transgender.  I agreed but was somewhat anxious.  I needn’t have worried.  Chennai based Shanti was poised, smart and multi-talented. She was doing her Master’s, had a government job and was active in the transgender movement. However, there were others in the meeting not as fortunate as Shanti.

Most of them has some or no education, few marketable skills and made whatever living they did by pimping, prostitution, singing and dancing and begging.

It was an eye opening two days.  I learned a great deal about their struggles and challenges, heartaches and sorrows.  And I learned that we, non-transgenders (if I could coin the word) knew very little about them and the discrimination they faced on a daily basis.

The Supreme Court further ordered the government to provide transgender people with quotas in jobs and education in line with other minorities, as well as key amenities. While this may provide them with some opportunities, knowing how the bureaucracy works, it will still be a tough battle for them.

A change of heart and mind of non transgenders toward the transgenders is what is really needed. And that, unfortunately, cannot be legislated.

By Anita Anand

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