Getting out of 2G muddle

Ever since the Comptroller and Auditor General (CAG) blew the lid off the controversial 2G spectrum allocation , everyone wants answers to two questions. First, what should be the fate of former Telecom Minister, Mr A Raja; and secondly, what should be done with the five companies including Unitech Wireless (now known as Uninor), STel, Swan (Etisalat DB), Loop Telecom and Datacom (Videocon), that got licences in 2008 allegedly through irregular means.

While we leave the first question to be answered by investigating and law enforcement agencies, it is the second question which has future ramifications for telecom consumers and the industry.

The findings of the 77-page CAG report essentially boils down to two allegations — that licences were given in 2008 to the five operators even though they did not meet the eligibility criteria; and licences were given at a throwaway price depriving the National Exchequer of an opportunity to earn as much as Rs 1.76 lakh crore.

Terming the entire process as illegal, the CAG has recommended that the Government should cancel the licences.

TRAI recommendations

Within a few days of the CAG report, the Telecom Regulatory Authority of India also came out with its own recommendations suggesting that the Government cancel the 69 licences held by six companies, including Sistema Shyam, because they have not fulfilled their roll-out obligation even after nearly three years of getting the licence.

But despite the recommendations of these two constitutional authorities, the Telecom Ministry now under the charge of Mr Kapil Sibal seems to be looking for a compromise solution i.e. to ask the new operators to pay more and in return, all will be forgiven and they can continue to keep the spectrum.

The raison d'être for this suggestion is that such a move will raise more money, thus compensating the Exchequer for the loss . The Ministry also reckons that cancelling licence is unviable as it could send wrong signals to the investors.

Flaws in proposal

However, there are serious flaws in this proposal. The new operators may agree to pay up and the Government mayget revenues; but the move does not address the basic issue of ineligibility raised by the CAG. Also, this will send out a signal that companies can flout norms and still get away with it.

The other potential bone of contention will be the yardstick to determine how much they have to pay. Even if the decision is left to a Group of Ministers, the entire process of consultation and policy making could take at least a year, if not two.

That's a lot of time given the sheer scale of the charges levied by the CAG. There is an option to link 2G spectrum cost to 3G prices, but that has already been trashed by the industry on grounds that the two cannot be compared.

This uncertainty could once again leave the door open for lobbyists and deal makers to get the Government to accept a lower fee.

As the TRAI report highlights, most of these companies have not even rolled out services, not only depriving the consumers but also blocking the chances of other serious players who could have started services if they had a fair chance to pick up spectrum through an auction process.

Instead of punishing the new operators for their trespasses, the Government is looking to keep them in business.

When a consumer fails to furnish proper identity and residence-proof, his mobile connection is terminated; there is no reason why the Government should be so benevolent to these companies when the CAG has clearly pointed out they gave false certification at the time of taking licences.

Right course

If the Government is really serious about correcting past mistakes in the 2G allocation, it should act upon the advice given by the two constitutional authorities and cancel the licences. Such an action will have several positive outcomes.

Firstly, it will send out the right signals to the industry that the Government will not tolerate excuses in fulfilling roll-out obligations and meeting other licence conditions.

Secondly, the move will free up nearly 200 Mhz of precious 2G spectrum, which can be auctioned. The money generated will certainly offset the presumptive losses to national exchequer due to the earlier decisions. To be fair, even the new players can be allowed to buy back the spectrum through the auction if they meet the eligibility criteria.

Thirdly, the auction would for the first time give the actual value of 2G spectrum which will put an end to all debates in this regard.

The derived value can even be used to ask the incumbent operators, including Bharti Airtel and Vodafone, to pay up for the excess 2G spectrum they have.

On the other hand, if the Government allows the new companies to continue in business by paying some money, it will be a repeat of the mistake committed in 2003 when the NDA Government allowed fixed-line operators to become CDMA-based mobile operators by asking them to pay a one-time entry fee.

That decision has become the genesis of almost 95 per cent of all disputes and controversies in the telecom industry since then.

Those who are not in favour of cancelling the licences argue that customers of these operators will suffer if the Government takes away the spectrum.

It's a valid concern; but with the advent of Mobile Number Portability, subscribers can be given the option to move out . In any case, apart from Uninor and Sistema Shyam, the others have not really operational . The new operators put together will not account for more than 25 million subscribers. Shifting these subscribers to another network will not be a huge task.

Legal hiccup unlikely

Detractors of cancellation also argue that it will send wrong signals to foreign investors who have picked up stake in some of the new companies, which in turn could trigger lawsuits against the Government. In such an eventuality, the Government has enough legal protection.

The licence agreement clearly state that if the information submitted by the company at the time applying for licences is found incorrect at a later stage, the Government can cancel the licence.

The same document also stipulates that if the operator fails to fulfil roll-out obligations, there are provisions under which the Department can take back the spectrum.

According to the CAG and the TRAI, the new operators fail on both counts - hence their lawsuits will not be legally tenable.

In fact if the Government takes a decisive action, it will send the right signals to investors that the Government means business when a public resource such as spectrum is given to them.

Why high 3G spectrum cost may not lead to high user fees

In about six months' time, at least four telecom companies in your area are going to come to you asking you to sign up for their third generation (3G) mobile services. The operators who will approach you are not new — but what they are about to offer you will be new.
These operators, including Bharti Airtel, Reliance Communications, Vodafone Essar and Tata Teleservices, have emerged winners in the recently concluded auction that lasted for 34 days. Together, they have agreed to pay as much as Rs 67,718 crore to the Government for buying the spectrum that's required to offer 3G services. For example Vodafone will cough up nearly Rs 11,500 crore for air waves in nine circles while Reliance Communication has won spectrum in 13 circles for Rs 8,585 crore. But the worry now is whether these operators, in their desperation to get more spectrum, have overbid and as a result will consumers have to pay out a higher fee for availing all the goodies that 3G technology brings? The concerns are not unfounded because similar auctions conducted earlier in Europe ended with operators quoting astronomical amounts resulting in high tariffs.
A quick comparison with international benchmarks on dollar/MHz/Population shows that Indian operators have to pay $5.5 per Mhz per population for Metros areas, which is the same levels reached during auctions in the UK and Germany. However on an all-India basis, this number is close to $0.6 that compares with Asia (Ex Japan) and US 3G auction benchmarks of $0.6/MHz/ population. Calculations done on a dollar per Mhz basis reveal that Indian operators have to pay about $26 million per Mhz for a circle such as Maharashtra, $6.8 million per Mhz in Punjab and a whopping $70 million per Mhz for Delhi. In Europe, this number was just near to $3 million per Mhz though it has to be noted that larger chunks of spectrum were put on the block.
pressure on operators
Prashant Singhal, Telecom Industry Leader, Ernst & Young, thinks that the high bids will put pressure on the operators. “The impact of the 3G bids will be felt on the industry for years to come. The industry is yet to recover from the price war that culminated in the 1 paisa per second plan. As a result, the industry has seen little revenue growth over the past six quarters. That could be a big negative for a sector that was not impacted much by the global slowdown in 2008-09.”
Bharti Airtel, which has to pay to the tune of Rs 12,295 crore — the highest among all the bidders — thinks that the number is high. “We would like to point out that the auction format and severe spectrum shortage, along with ensuing policy uncertainty, drove the prices beyond reasonable levels.
As a result, we could not achieve our objective of pan India 3G footprint in this round,” said a Bharti spokesperson.
Others, however, don't agree that the bids quoted will pinch the operators. There are two factors working in favour of Indian players. First, with as many as 500 million mobile users, the market potential is huge. For most consumers 3G will be the first and only way to access broadband services on mobile devices. Second, if one looks at the bidding pattern, the operators have wisely taken circles where they already have a strong presence. Both these factors will cushion the high spectrum cost to some extent.
Naresh Singh, telecom analyst, Gartner, says, “Obviously, the spectrum pricing looks very high, but if you look at 500 million subscribers, that 3G has the potential as it can be used for both voice and data, the spectrum price may be viable. This shows that the Indian telecom market has matured, and now I think the operators have taken into consideration that this market will require longer time of gestation and are willing to take that risk.”
Agrees Praveen Bhadada, Engagement Manager, Zinnov Management Consulting Pvt Ltd, “Given the fact that 3G spectrum will ease capacity constraints and increase the revenue per user, service providers should be able to absorb the high costs and roll out cost-effective 3G services for the end consumers.”
A look at the bidding trends reveals that most operators have quoted amounts that are much lower than the annual revenues they get from that circle. For example, in 11 of the 13 circles where Bharti won 3G spectrum, the operator has quoted an amount that is much lower than the current revenues it earns from those circles.
In Andhra Pradesh, Bharti has agreed to pay Rs 1,373 crore for 3G spectrum which is just 48 per cent of its current annual gross revenue from that circle. In Karnataka, Bharti has to pay Rs 1,578 crore which is just 49 per cent of the income generated there. On the other hand, Bharti dropped out of the race in Maharashtra and Gujarat where the bid amount had crossed the company's annual revenue numbers. Similarly, Vodafone has taken spectrum in circles mostly where the bid amount is lower than its annual revenues from that circle..
“Given the high price of pan-India spectrum, the operators opted for circle selective strategy to cover their key strategic circles or build geographic foot print. Incumbent operators have ensured that they offer 3G services in their stronghold circles to protect their key high ARPU subscribers,” says a report from Religare Capital Markets.
There's another reason why operators may not be able to charge a very high fee for 3G services. There are already five players in the country who are offering 3G services and the tariffs they offer could act as a benchmark for the new players. “Benchmark for 3G service has been set by BSNL and MTNL. In the data segment, there are products such as Tata Photon plus, so new operators will have to price their services accordingly to remain competitive,” says Kunal Bajaj, Partner, Director India Analysys Mason (India).
BSNL charges as low as Rs 249 a month for its basic 3G plan and offers up to 5 Gb download for Rs 899 a month. Reliance offers 20 GB download for Rs 799 a month using EVDO technology, which is a 3G platform. (The average monthly download at present is about 4-5 GB per user per month according to industry estimates).
Handset price, coverage issues
But there are other challenges. To avail 3G services, consumers will have to purchase a handset that is 3G-enabled. At present only about 20 million subscribers own a handset that is 3G enabled. A new 3G handset today costs upwards of Rs 5,000, which for many could be prohibitive. In the 2G space, the market boomed only when the cost of handset reached Rs 1,000 level. Therefore, there could be a possibility that initially 3G services will be limited to mid and high-end customers.
However, handset vendors and chip makers such as Qualcomm say that they are working on cheaper devices. “We are committed to making 3G a mass market experience for all Indian consumers,” says Kanwalinder Singh, President, Qualcomm India and South Asia.
The other issue could be the lack of pan- India coverage for any of the seven operators. Bharti, Reliance and Aircel have managed to get a maximum of 13 circles. Others have even less. This could be a problem when it comes to roaming. While roaming agreements between the operators could address the issue of coverage, the charges could be a worry. In the 2G space, even though operators have pan-India coverage they still charge a premium for roaming so they could charge higher for 3G services, especially since they do not have their own network in every circle. CDMA players Tata Teleservices and Reliance Communications are probably the best positioned in this regard since they have a pan India EVDO network in addition to the 3G spectrum they have now bagged in 13 and 9 circles, respectively.
Another dampener
Lack of applications and value-added services could be another dampener. Though operators and value-added service players are investing a lot of money and time to pull out some interesting applications, trends so far in this space have been disappointing, with most applications revolving around bollywood, social networking and entertainment. However this is also an opportunity for all the value-added service providers to start innovating and come up with applications that help consumers in their daily lives.
For instance, NTT DoCoMo, in Japan, has a health service on the mobile device that monitors the user's various health-related parameters such as heart beat rate and calories burnt during the day. At the end of each day the service generates a report and sends it to the user and also to the user's doctor. In India a number of pilots are being conducted on services relevant for farmers, fishermen, healthcare service providers and education.
“You will see a plethora of interesting applications over the next 12-18 months because now the ecosystem required for VAS is coming all together. Soon the 3G network will be in place, handset devices that support innovative applications are already coming into the market and now the operators themselves will push such services. Till now it's all been ad-hoc and VAS players were left in the fringe. But this is changing,” says Vinish Kathuria, COO, Spice Digital. There are a host of other players such as OnMobile, Comviva, Nazara and TeleDNA who are looking to latch on to the opportunity.
Operators gung-ho
Notwithstanding these challenges operators themselves are quite gung-ho about launching 3G services. Vodafone Essar's CEO and Managing Director, Marten Pieters, says: “We are excited to be able to offer 3G services to our customers and aim to launch the services before the end of the year. We expect a strong uptake for 3G in these markets, particularly among the higher value customers, which is a growing segment owing to rising affluence and increasing urban population. We also note with interest that a significant proportion of our customer base in these markets already has a 3G-enabled device.”
STel, which is the only new player to have won 3G spectrum in three circles is looking at a regional play. “Unlike the large pan- India players we are focused on the regional markets. This is an advantage to us because we can think about localising 3G services to meet the requirements of our customers,” says Shamik Das, Chief Executive Officer, S Tel. So in six months' time you could well be experiencing 3G services, hopefully those that are not expensive.

Is Broadband over free spectrum viable?

In February this year, a relatively unknown Internet services provider from Mumbai — Tikona Digital Networks — announced plans to offer wireless broadband services utilising unlicensed spectrum. The company started out with the service in 10 cities and is targeting 50 cities by the end of this year with an investment of Rs 500 crore.

At a time when as many 15 telecom operators have tied up billions of dollars to buy spectrum for offering broadband services, the move from Tikona to offer up to 2mbps speed on free air waves has raised many eyebrows.

Use of unlicensed spectrum is not new in India. Globally, and in India, frequency bands in 2.4 Ghz, 5.8 Ghz and 3.3 Ghz have been kept aside as free spectrum that can be used by anyone without taking a licence or paying a fee to the Government. Small Internet Service Providers (ISPs) across the country have been using unlicensed spectrum over the past few years. But Tikona's aggressive roll-out plan is looking to be a potential game-changer for two reasons.

Until now, Internet services on unlicensed spectrum were being deployed only in tier-3 cities where the subscriber base is not very dense. Now Tikona has dared to roll out into top cities, including highly dense cities such as Delhi and Mumbai, using the free air waves in 2.4 Ghz band and 5.8 Ghz band.

Second, the quality of service on unlicensed spectrum has been a question mark due to interference from hundreds of other users for free air waves. Tikona claims to have resolved this issue by deploying some of the latest technology available.

“We are deploying wireless broadband services on the Multiple-Input and Multiple-Output (MIMO) platform using about 110 Mhz of free spectrum. Though there are multiple users on this band, we have taken care of interference issues through a unique network architecture. Subscribers can get up to 2Mbps speeds, which is the fastest wireless broadband services in the current market,” says Prakash Bajpai, Founder, MD and CEO, Tikona Digital Networks.

The company has already set up 16,000 receivers, which are in the form of micro base stations, and plans are afoot to increase it to 90,000 this year.

So, if Tikona can use free spectrum to offer high-speed broadband, why can't others?

According to Ruckus Wireless, one of the technology partners of Tikona, there are other ISPs and operators who are already looking at unlicensed spectrum in a new light.

Sudarshan Boosupalli, Country Head of Ruckus Wireless, says, “We are talking to a bunch of players who have shown interest in using free air waves for offering broadband based on 802.11n standards. We have developed technology that addresses the single biggest concern of using unlicensed spectrum till now, i.e. interference.”

Ruckus Wireless has developed a patented software-controlled multi-antenna array that forms and directs signals over the best performing signal paths in real time, on a per packet basis. The California-based technology firm claims that its platform automatically selects better signal paths to increase performance and minimise packet loss, thereby ensuring good, consistent user experience. To address the concerns of wireless security and unauthorised access, operators can deploy WPA2, which is the highest level of security available on wireless networks.

Once service quality issues are taken care of, unlicensed spectrum offers other advantages compared with licensed air waves. For one, operators do not have to pay anything for using air waves in the free bands, as against a few thousand crore rupees required to buy licensed spectrum. Second, the overall cost of rolling out a network in unlicensed spectrum is much lower. “Use of unlicensed spectrum is the ideal cost-effective solution to the broadband needs of India. Apart from saving on the cost of buying spectrum, the capital expenditure required to set up a meshed network in unlicensed spectrum is five times lower compared with rolling out a WiMax network in licensed spectrum. This will, in turn, enable the service provider to offer cheaper broadband services to consumers,” says Boosupalli.

Agrees Rajesh Chharia, Former President, Internet Service Providers Association of India, “The base price for the upcoming auction for broadband spectrum has been kept at Rs 1,750 crore. There is no business case for anyone to offer broadband services at that cost. For ISPs, unlicensed spectrum continues to be a more attractive proposition.” Chharia owns an ISP business called CJ Online and caters to the mofussil areas of Ghaziabad in Uttar Pradesh riding on free spectrum.

‘unreserved vs air-conditioned'

The clamour for using unlicensed spectrum is also growing globally. Technology firms including Microsoft and Google are making a case at various regulatory forums for promoting use of more free spectrum bands. “Having seen what is possible in the 2.4 GHz but also in several other bands (such as 5 GHz) as well, it is easy to imagine possibilities if similar type of de-licensing happens in lower frequency bands, especially with respect to the much better propagation characteristics,” states a letter from Microsoft to the Telecom Regulatory Authority of India.

Microsoft is pushing its own technology platform, White-Fi, which allows any service provider to utilise unused spectrum at any given time in an area dynamically, without causing interference to existing players.

But traditional telecom operators do not see any scope of comparison between licensed and unlicensed spectrum. “It is like comparing passengers travelling in the unreserved compartment of a train to the ones in the air-conditioned coach. Unlicensed spectrum can never match the quality and reliability offered by licensed air waves. Once we own spectrum, we can control it to optimise according to the traffic and usage. But in unlicensed spectrum there are many users with no control, so there is bound to be trouble,” says a large telecom operator.

None of the large telecom operators are therefore looking to use free air waves as of now. Tata Communications, one of the big players which until now was offering broadband on unlicensed spectrum, also sees limited use. “Interference issues in dense urban areas is still a major issue. Seems to be fine for semi urban or rural areas,” says a Tata Communications executive. The company has put in its application for bidding for broadband spectrum in the upcoming auction clearly indicating its preference for licensed air waves.

Some of the established Internet Service providers also do not see much benefit in the unlicensed spectrum story. Says Naresh Ajwani, Former President,Consumer Infrastructure Services of Sify Ltd, “If anyone says that unlicensed spectrum can be deployed for broadband then one should ask them to prove the business case first. Technology and other things come only after it can be established that there is a viable business case.”

However, Tikona's Bajpai reckons that the opposition from the incumbent telecom players is not surprising since they have to justify their investments in their existing networks. “None of the incumbent telecom players can replicate what we are doing at Tikona. For that they will have to rip apart all their existing networks rolled out with investments of billions of dollars. Therefore they have no option but to buy spectrum to protect the investments made until now.”

Despite the optimism towards unlicensed spectrum, interestingly, even Tikona has joined the bid for buying broadband spectrum. That could be to boost its services in urban areas even as it continues to use free spectrum in tier-2 and 3 regions.

According to ISPAI's Chharia, there is huge scope for deploying unlicensed spectrum in non-urban areas. “There are only a few areas where the broadband user density is high. In other parts of the country unlicensed spectrum is an effective medium. I know ISPs who offer connectivity in Bihar and Orissa using free air waves,” says Chharia.

Market watchers reckon that unlicensed air waves could also become a back-up plan for those telecom players who do not win spectrum in the upcoming auctions. There are 15 companies in the fray for three slots of 3G spectrum and two slots for broadband wireless access. This means that there will be at least 10 players who will not get any spectrum. Assuming that none of these players would want to miss out on the huge broadband market, expected to be over 40 million subscribers in the next few years, using unlicensed spectrum could just be their Plan B

Hurdles in Leapfrogging to 4G

Back in the mid-1990s, when mobile services were launched in India — more than 10 years after the first generation (1G) cellular network was rolled out by NTT in Japan — cellular operators here had leapfrogged technology. Indian mobile service providers had straightaway launched a network that was based on second generation (2G) technology i.e. GSM standard; altogether skipping first generation technologies such as Total Access Communication Systems, Advanced Mobile Phone System and C-Nets deployed then by various operators in Japan, the US and Europe.

Fifteen years hence, in 2010, Indian cellular operators are facing the same question yet again. Should they leapfrog from the existing 2G network to fourth generation (4G) technology and give third generation (3G) a skip?

There are various 4G technologies that are being developed and adopted globally. But the most widely talked about is called the Long-Term Evolution (LTE) as some operators in Europe and the US have already started commercial deployment on this platform.

LTE allows more data to be transferred over the same bandwidth used by 3G technology and at higher speeds. Compared with the 3 Mbps speed offered by third-generation services, LTE can offer speeds of up to 10 Mbps. As a result, service providers should be able to get more data transfer out of their network and possibly lower the cost to run their networks. LTE allows operators to introduce exciting services such as HD (high-definition) video blogging, HD video on demand, media mobility, online gaming. It brings a significantly improved business proposition with 2.5 times higher capacity, lower cost per bit and media mobility.

Add to this the fact that India is already nine years behind other countries when it comes to introducing 3G technology. While operators such as Vodafone, NTT DoCoMo and AT&T have been offering 3G services in Europe, Japan and the US, in India the operators are still on plain old GSM network. The delay has been primarily due to the fact that the Indian Government has already taken four years to discuss and debate various aspects of auctioning 3G spectrum and still there is no finality.

3G bus missed?

All this makes analysts believe that India may have missed the 3G bus and therefore should move to 4G in order to catch up with the rest of the telecom world. “Indian operators could look at moving straight to fourth-generation technologies, considering the timing and the current revenue potential. Why should Indian operators invest in a technology when they are unsure of the timing and the revenue potential? The current data needs can be taken care through existing 2G and EDGE technologies and therefore depending on the timing and the business model, Indian operators could move to 4G directly,” says Marc Chaya, Global Telecommunications Markets Leader, Ernst & Young.

The Telecom Regulatory Authority of India has also shown interest in putting together the policy framework for introducing 4G services. “A number of countries including Sweden, Norway, the US, Korea and Japan are moving towards 4G services and therefore India should also be prepared for introducing the technology at the earliest,” says the regulator, which has floated a pre-consultation paper seeking the views of the industry.

The TRAI move is being backed by mobile operators including Tata Teleservices and Reliance Communications. “About 23 operators will be launching 4G globally this year. 3G was launched in 2001 and we are already nine years behind. It should not happen that we are left behind in adopting 4G technology,” says Anil Sardana, Managing Director, Tata Teleservices. Japan's NTT DoCoMo, which has a stake in Tata Teleservices, is conducting trials on LTE in Tokyo and therefore ideally positioned to back the Indian company if it decides to deploy 4G technology.

Even new mobile players such as Telenor, which are rolling out their 2G network, see value in skipping 3G, albeit for a different reason. These players are investing heavily in setting up their new network and may not be in a position to immediately spend more money to buy 3G spectrum in an auction. “Only two-three operators will get 3G spectrum so the others can move to 4G. Even if the Government allocates 3G spectrum by September 2010, operators will not be in a position to launch the services before mid- 2011. By that time LTE will be commercially available for operators to deploy. Since even 3G players will ultimately move to LTE, we are looking at moving straight to 4G technology in a year's time,” says a Delhi-based operator that recently launched its GSM services.

Hurdles in the way

However, leapfrogging to 4G may not be all that easy as there are a number of stumbling blocks. For one, there is the eternal problem of finding adequate spectrum. Existing versions of 4G technologies such as LTE need more bandwidth to support the high-speed data services. “LTE will require at least 2x 20 MHz per operator to meet the need for high bandwidth services. In India it will be very difficult to find spectrum, that too such big chunks. Hence, the issue is more of spectrum consultation than of a technology debate,” says a technology consultant backing 3G technology.

There is still no clarity on the spectrum band that is best suited for 4G as the US and Europe are using different frequency bands. There is no synergy between the frequency bands being used elsewhere and India because these bands have already been given to other local users. Synergy in frequency band is important to keep the cost of the devices and the network low. If 4G services are offered in different bands across the globe then multiple-band handsets will come at a premium. In comparison, 3G air waves have been synergised globally in the 2.1 Ghz band which enables vendors to supply handsets at less than $100.

Even if the policy makers push for opening up of new bands such as 700 MHz, this might turn out to be a lengthy process, similar to what happened in the case of 3G. “It has taken the Government more than three years to figure out spectrum for 3G services in 2.1 Ghz. So what is the guarantee that 4G will not meet the same fate? It's okay to talk about leapfrogging to 4G but it may not be practical,” says an existing mobile player.

The other major issue is that 4G standards are still being evolved globally. The International telecommunication Union, the global body which stipulates standards for communication technologies, is yet to release the specifications for true 4G technology called LTE Advanced. Operators such as AT&T are still investing in upgrading their 3G networks and have scheduled commercial launch of LTE only in 2011.

“Operators in India will have to make a choice on whether to leapfrog or not, taking into consideration their business model and costs involved for consumers. 3G technology has been around for nine years and has a mature ecosystem to enable cheaper devices and network. 4G, on the other hand, is something that will definitely happen in the future, but not today,” says a market analyst.

Just like in the case of 1G mobile services, the first 3G network was also deployed by Japan's NTT.

Will the Indian operators repeat history and leapfrog a technology first rolled out by the Japanese? This time the stakes are higher.

http://www.thehindubusinessline.com/ew/2010/02/22/stories/2010022250040100.htm

Shackled Jumbo

When the Titanic was being built, no one in the US would have thought in their wildest dreams that the ship would sink in its maiden voyage; nor would have the Palestinians thought that the mighty Goliath could be defeated by a small shepherd boy. India could soon have its own Titanic-like story in the form of Bharat Sanchar Nigam Ltd. The telecom behemoth, which once upon a time was the largest telecom player in the country, is today in a sorry state.

Consider these: In 2005-06, the Public Sector Undertaking reported revenues of Rs 36,138 crore from operations, which has reduced to Rs 30,268 crore in 2008-09. Profit from operations has slumped — from Rs 4,230 crore in 2005 to a net profit of Rs 574 crore in 2009. All indications are there that the company will slide into the red at the end of the current fiscal. It is also losing market share in the highly competitive market, which has as many as 12 operators.

The company has lost 6 million fixed-line telephony subscribers in the last three years. In June 2006, it was within shouting distance of the top spot in the mobile telephony business in terms of subscribers. But then the slide began and today BSNL is down at the number four slot in the GSM category. All this happened when the telecom sector was growing the fastest in the world. While BSNL's market share decreased, private operators such as Airtel and Vodafone tripled their subscriber base. In 2008, BSNL lost the top spot in terms of revenue to Bharti Airtel.

So, like Titanic, did BSNL also hit a large iceberg that has sunk the company so close to being bankrupt? Dr D.P.S. Seth, the first Chairman of BSNL, says that political interference and subsequent delays in procuring network equipment at the right time is the most important reason for the way the telecom PSU's performance has nosedived. “For a telecom operator to be successful it has to roll out a network that can support the subscribers. This has to be done at the right time. How can BSNL compete with the private players when it is not allowed to buy the equipment for three-four years?”

Since 2005, the public sector unit has been able to buy mobile telephony gear for supporting just about 20 million subscribers due to controversies surrounding the tendering process. Private players, on the other hand, have signed multiple deals during the same period which has enabled them to triple their subscriber base in the last five years. BSNL floated a tender for 63 million lines in 2006 but was delayed after Motorola went to court. This tender was finally reduced to a mere 13 million lines at the behest of the Communications and IT Minister, A Raja.

Though BSNL tried to compensate by floating another tender to buy equipment for supporting 93 million subscribers in 2007, the contract is yet to be signed owing to a messed-up process. This time Nokia Siemens has gone to court after BSNL disqualified its offer, leaving only Ericsson and Chinese manufacturer Huawei in the fray.

The matter has got further complicated with the Home Ministry raising concerns over giving the contract to the Chinese vendor, the Central Vigilance Commission has started an enquiry into the entire process. Had BSNL gone ahead with these two projects, it would have been at the top.

“Every time BSNL wants to buy equipment there are hundreds of questions asked by everyone on issues related to irregularities and allegations of corruption. If the Government has appointed a Chairman and a Board then it should allow them to take decisions freely. Yes, they need to be accountable, but just like private operators are accountable to their stakeholders and respond to queries once a year in the annual general body meeting, a PSU should also be given the flexibility to function independently and then stand scrutiny of the Government agencies once a year. At present the scrutiny on PSUs is on a daily basis. In a year the Chairman of BSNL, in general, spends 260 days responding to such queries, so when will he work?” poses S.D. Saxena, who recently retired as Director (Finance), BSNL. BSNL insiders are sure that its business interests are being sabotaged by private operators even as the PSU has become a playground for dishing out political favours.

The brakes on BSNL's mobile juggernaut were applied in 2006 when a vendor, disqualified from a tender to supply mobile equipment, went to court, alleging irregularities in the process. “It is said that the court case was in the interest of the competitors who wanted the delay to prolong so that BSNL goes out the burgeoning market place giving the other operators a free hand in the market. We found that in those days not a single lawyer worth the name was available to fight the case on behalf of BSNL as all the other operators had retained them to fight the case for the applicant who was delaying the finalisation of the tender,” says Saxena.

Slow decision-making

Another former Chairman of BSNL under whom the PSU was growing rapidly says the blame also lies with the top management for slow decision making. “There are lots of discussions and debates but the final decision is taken after much delay. For example, the move to share towers should have been done three years ago. I don't see the push that is required from the top management. The more you delay decisions, the more will be the interference from every quarter. The management of such a large company should be bold and take quick decisions. They should not accept whatever comes from the top,” says the former BSNL honcho on conditions of anonymity.

The delay in decision making is not allowing BSNL to press home some of its advantages. For example it had been given spectrum to offer third-generation mobile services and wireless broadband services almost two years ahead of private players but has not been able to capitalise on the first-mover advantage due to lack of network equipment. The other issue the PSU is struggling to work with is to bring the employees union on the same page as the management. While BSNL management wants to get the company listed on the stock exchanges to bring in more accountability and efficiency, the union is dead against the move. “BSNL is not being beaten in the market. If that was the case we would have reconciled to it being the product of market forces. But BSNL's downfall is being caused through external factors,' says a BSNL officer.

No dearth of talent

But not all is lost yet. For one, though they are a demoralised lot these days, BSNL officers are a talented lot. “Most of the private operator's networks have been rolled out by retired BSNL officers. So if you give them a free hand to run the operations these officers can perform better than any executive in a private company. Even now, if things change, BSNL can compete,” says Dr Seth. The other good thing is that BSNL has a huge cash reserve of Rs 38,000 crore, which gives it the bandwidth to make large investments.

In a bid to address the problems, the Prime Minister recently held a meeting with top functionaries of the Communications Ministry and BSNL, to discuss a whole host of issues, including the proposed IPO and possible merger with MTNL. “With oversight by the Prime Minister, I am confident the necessary steps will be taken to facilitate a turnaround in BSNL's fortunes, ” says Rajeev Chandrasekhar, Member of Parliament, who had written to the PM suggesting ways to turn around the PSU. Chandrasekhar's suggestions include changing the management structure of BSNL and appointing a Chief Operating Officer through an international hunt.Three lakh employees and 80 million customers across the country would be hoping that BSNL does not sink and lives to fight another day.