(MK Venu is Executive Editor of Amar Ujala publications group)
The importance of telecom services in the consumption basket of over half a billion Indians is generally underestimated. Ask the largely self-employed migrant workers in big cities or small towns, and they will tell you how mobile bills constitute around 6% to 8% of their monthly consumption expenditure. This is by no means a small amount. So when Telecom Minister Ravi Shankar Prasad stated in a press conference last week that the " most successful telecom spectrum auctions in history" would fetch the government Rs.1.09 lakh crores and will add to the cost of mobile services, he did not possibly realize that for the large number of poor, this could mean an increase in mobile bills every month. The minister claims the increase in mobile costs will be marginal but the industry disputes Prasad's claim. Bottom line is increased costs will have a direct impact on the pace of implementation of the PM-championed Digital India, which seeks to connect every poor rural household in an inclusive digital vision.
Of course, it is wrong to conclude that the high price for spectrum paid by operators in the recent auction (the government earned 25% more than it had estimated) will automatically be passed on to the consumers. In the past telecom players have shown efficiency in absorbing the higher costs due to intense competition. In a situation of perfect competition, with many players in the fray, it is natural for mobile services company to focus on retaining and growing their market share, especially in rural India, which is, at present, registering the bulk of incremental growth.
The mobile telephony industry has been bitterly complaining and has argued that its current EBIDTA (Earnings Before Interest, Depreciation and Tax) works out to about $6.5 billion annually, and its total costs, including capital expenditure, payment for spectrum, interest costs etc works out to $13.5 billion. So the costs are double that of the earnings, and the spectrum auctions have only added to these problems. Therefore, technically the industry, if it wants, can cover costs and make some profits by roughly doubling the mobile charges.But this may not be a sustainable solution from the standpoint of implementing an inclusive digital vision. The massive spread of telephony has happened in India only because of its low cost to the consumer. This cannot be reversed.
Consequently, there is a need for the industry and government to work together. Industry cannot complain about the auction process, because there is a strong political-economy background to this. The telecom or 2G scam resulted largely because spectrum was given away in 2008 to industry in an arbitrary manner at throwaway prices. After the intervention of the national auditor and Supreme Court a few years ago, the UPA had to undertake a policy course correction by resorting to an auction of spectrum. The overall philosophy of telecom policy and regulation should be a balanced distribution of surpluses between the consumer, operator and the government. The government and industry should sit together and find ways to effect a balanced distribution of surpluses between the three stakeholders.
This can only happen with the rapid expansion of the Digital India project, which lays equal emphasis on data-driven growth in rural India. This will expand other market segments for private mobile service providers, who are today largely dependent for revenues on the voice market. They cannot raise rates for pure voice service dramatically for fear of losing customers. The only option for them is to explore the market for data services.
The government can play a big enabling role in the expansion of data-related services by connecting the millions of educational institutions, and district-level government institutions which provide essential services. If this public-private partnership succeeds, then the revenue base of the private mobile services can expand without necessarily making the consumer pay much higher charges for use of mobile services. The government must use its Universal Services Obligation fund, now $4 billion, which mandates that such money be spent to enhance rural connectivity.
The private sector and government must get out of the current confrontationist posture with each other and find solutions which help everyone, including the consumer.
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