Kanika Datta: A cold call for customers

SWOT

Whose side should the government be on in the current battle for spectrum between telecom operators of rival technologies? Who should the combatants "" participants in dynamic and competitive marketplace "" be concerned about?

The logical answer should be the consumer. But consumers themselves can be forgiven for thinking otherwise.

Almost everyday, Business Standard and other newspapers publish news about the "telecom wars".

Yet ironically, the convulsions over GSM technology versus CDMA technology "" a war that dates back several years "" is one that has bypassed most customers.

This is because the telecom controversy appears to have degenerated into a self-perpetuating war of attrition "" the Western Front of the telecom sector, if you will "" between competitors of competing technologies in which the government has played an ambiguous role.

Thus, we have Reliance Communications (RCom) which appears to be breaking all records in writing letters to the prime minister and other influential people on the alleged perfidy of operators of Global System for Mobile operations (GSM) in cornering spectrum.

Operators of GSM mobile services have not been remiss in their retaliation either. They have appealed to the telecom tribunal for a host of issues, the biggest being that purveyors of Code Division Multiple Access (CDMA) technology have been allowed to offer GSM services.

Both sides are also feverishly offering arguments on which technology should be entitled to preferential allotment of spectrum, the radio frequencies that enable wireless communications.

Spectrum has become the centre of the battle because it is in short supply, chiefly owing to the reluctance of the ministry of defence to release certain bands under its control.

But the issue has acquired a new momentum with the government raising the bar on spectrum access and opening the doors to new competitors.

All service providers need more spectrum to service rapidly growing demand. India now adds 5 to 6 million customers every month, from 3 million a month two years ago, making it one of the world's fastest-growing markets.

While this is clearly a sign of pent-up demand, incumbents are objecting to the entry of new competitors on the grounds that there isn't enough spectrum to go round.

Consumers feel the edge of this shortage-driven battle in terms of congested networks and the growing frequency of dropped calls. But a solution to an increasingly serious customer problem is unlikely to be solved quickly because the government and the telecom operators themselves are embroiled in polemics that are quite unconnected with consumer interests.

Certainly, lobbies to restrict competition and access to spectrum can hardly be considered consumer-friendly. Manmohan Singh, who has taken a magisterially dispassionate view of the matter despite receiving many importuning letters, has rightly said that spectrum should not be used to create entry barriers.

But the larger question is whether the government should have dictated policy choices in the first place and whether spectrum should have been subject to an opaque price-fixation mechanism.

Should only GSM services have been permitted way back in the nineties when the sector was opened up? Did it make sense for CDMA to be excluded initially? Asking the government to discriminate between one technology or another is about as logical as forcing people to use only the Mac or the PC.

Independent telecom analysts will tell you that, from the consumer's point of view, there is actually little to choose between GSM and CDMA services.

True, CDMA technology is more spectrally efficient that GSM, but it does not necessarily meet all customer needs.

GSM, for instance, may be more efficient for customers who require roaming facilities, especially international roaming. But CDMA is considered more efficient when it comes to data services.

GSM services give consumers the freedom to select handsets whereas CDMA services are bundled with handsets.

As telecom expert Mahesh Uppal points out, "Customers will take their own call on which technology to choose."

Given this, shouldn't the government's objective have been to focus on what serves the consumer best (free choice) and maximise revenues from spectrum, which is essentially an enabling service that it provides? Instead of being regarded as prey for competing lobbies, shouldn't the government institute a transparent pricing system for spectrum?

The fact that rivals are now submitting competing offers for the spectrum they need clearly points to the logic of auctions as an unambiguous price discovery mechanism, as this paper has consistently argued.

All these issues will acquire greater seriousness as Indian consumers move up the value chain and the demand for third-generation services grows.

Business journalists relish the racy copy that telecom executives and government officials are happy to leak. Mobile service providers are reaping generous profits from consumers in a market in which fixed line services have long been swamped out.

How far the consumer has benefited from all this is an open question.