Regulatory pitfalls again

Illogical to have different prices for 3G and BWA

With the mobile phone industry adding 10 million new subscribers each month, and a severe spectrum crunch having resulted, it is not surprising that the government is confident of getting big money when it auctions the 3G/Broadband Wireless Access (BWA) spectrum; it increased the estimate for this from Rs 20,000 crore in the Interim Budget to Rs 35,000 crore in the latest Budget. And since there was a difference of opinion between the finance and communications ministries on what the minimum reserve price for the 3G auction should be (finance wanted double the Rs 2,020 crore that communications wanted), the Prime Minister has been quick to set up a Group of Ministers to decide on the issue. The GoM will also decide on issues like the number of slots that are to be offered, the annual revenue-share licence fees, and so on. The GoM is welcome since it will ensure that the process does not get stuck in inter-ministerial wrangles, and ensure that there is some check on the communications ministry, which has been responsible for several questionable decisions.

However, the GoM would do well to keep a few things in mind. For one, keeping a lower annual revenue share for 3G services (as suggested by many) is a bad idea since, as seen in the past, this encourages regulatory arbitrage — some leading firms are being investigated right now for allegedly disguising their earnings to fall into the lower revenue-share slabs. Second, and more important, the distinction between 3G and BWA is an artificial one since both allow the high-speed flow of data — and voice traffic, at the end of the day, is nothing but data. Once a firm has got BWA spectrum, there will be enough devices that will allow it to offer voice services on this spectrum. So why should the government want to have a BWA reserve price that is a fraction of that for 3G? While the fee proposed by the communications ministry is Rs 2,020 crore for 10 MHz of 3G spectrum (five for carrying the signal up to the mobile tower and another five for carrying it down from the tower to the phone), it is Rs 1,010 crore for 20 MHz for BWA. The lower BWA fee is justified on the grounds that it is to be used for mobile broadband services and also on the grounds that BWA devices cannot be seamlessly used for voice telephony. But since several times more phones are sold than computers, more broadband will be accessed through phones.

Second, the reason why BWA phones cannot seamlessly connect with other phones (either fixed lines or the current 2G generation of mobile phones) is only due to faulty government policy. If the government allows full-fledged internet telephony, it will allow BWA phones to connect with landlines and the current generation of mobile phones. So the country should not get into a situation where firms get BWA spectrum at a price lower than 3G spectrum and, when the government allows full-fledged internet telephony, pocket the manifold jump in the value of what they have.