India is almost always too late to join the technology party, missing out on early action when most of the fortunes are being cashed upon. Against the $100 billion that 4G added to the world’s GDP, the 5G spectrum is expected to add more than $550 billion to the world’s GDP over the next five to 10 years. India was late into 3G/4G space in actual commercial deployment.
Can India break into the 5G party at an early stage when applications, or apps, are still on the drawing boards and premium pricing prevails? Here we examine some policy choices before the Narendra Modi government, which can enable and incentivise India’s telecom companies and technology giants to capture premium markets in the 5G space.
If India takes the traditional route of identifying available markets, looking at the demand parameters, and then organising the auction of spectrum to telecom companies, it will be years before we have 5G services on the scale, spread and intensity required for the technology to make any impact on India’s GDP and export markets. We will thus end up as a country with a large userbase of 5G services but a small player in driving the technology and its application space globally.
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For India to become early adopters and early movers in 5G space, we propose that the Modi government, along with the telecom companies, technology industry and other stakeholders consider giving spectrum for free to existing, well-established telecom players like Jio, Airtel, Vodafone, BSNL among others in 20 big cities in proportion to their existing market share in each city. Spectrum for 5G in other cities and towns should be allocated the usual way depending on existing or new players.
The 20 top cities could be identified by the telecom players, technology companies and the Centre. The spectrum initially given away should at least be equal to the existing 4G spectrum in each city. Services to be offered should not be constrained by availability of spectrum. Thereafter, telecom and technology companies should be left free to determine how to exploit the opportunity for India’s benefit and export markets.
The telecom industry today is in doldrums, with huge debts to banks that are barely being serviced. It lacks capital to invest on the scale required in 5G. Left to itself, the telecom industry will take years to come up with the capital required to make the necessary investment to exploit 5G opportunity to the fullest. Giving existing players startup spectrum free of cost will incentivise them to not only make such investments, but also capture an early share of the application space, which is expected to be several times that of the 4G space. We may note here that 5G will have far more industrial applications since various devices are connected to the internet and to each other. So, the apps space will be dominated by the same customers that the existing technology giants have. Early entry into 5G will give them and the telecom companies a welcome boost. It will of course help digitise India and Indian consumers faster as well.
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The Modi government won’t face any real loss by giving away the startup spectrum to telecom companies for free. The money forgone upfront will eventually show up through the profits made by the telecom companies, and the government can capture the required revenue stream by taxing services – certain percentage of sales plus the usual income tax. In a way, the Modi government would merely postpone the revenue collection from upfront to after the telecom players have started generating profits. In the process, this would strengthen the fragile balance sheet of existing players who owe tonnes of money to banks, which in turn don’t have the capital to lend money to the industry. The government, and thereby India, can sidestep this vicious and debilitating debt trap with its free 5G spectrum.
The proposal also meets the test of fairness. The auctions of 3G and 4G spectrums were gamed by players with enormous losses to themselves and the consumers at large. In the process, a lot of bad debt was inflicted on the banking system. So, this proposal is also motivated by the need to reset the entire telecom and technology space, put things back in order, clean up the bad debts, and restore profitability to existing players. No new player should eligible for free startup spectrum either. So, the political mess that characterised 2G auctions will not be repeated. Furthermore, allocation of spectrum within the selected 20 cities should be strictly according to existing market share. This eliminates favouritism.
Lastly, the startup spectrum should be free to use for five years with a bonus provision of extension by another five years, provided the spectrum is fully exploited by the telecom player. This will cut out any incentive in cornering the spectrum and keeping it unused. It will also help ensure that the required investments are made at the earliest to take maximum advantage of the free spectrum. After 10 years, the spectrum should be allocated the usual way.
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It is time to alter our traditional approach to technology as a late stage adopter. This approach not only delays benefits but also prevents full exploitation of assets created due to early obsolescence. In fact, by the time a new technology is fully deployed in India, the world is ready to move on to the next. Early adoption not only helps the consumers, telecom companies and the industry, but also holds possibilities of opening the route to master the innards of 5G technology by India’s technology players. This makes for safer deployment of 5G technology from the security point of view. But more than anything else, it enables our technology giants to enter into the hands-on application space very early, and capture the industrial markets unique to the 5G space. Surely the Modi government can afford to take a few risks, postpone revenue collection for a few years for such overwhelming advantage to India’s technology industry?
It is time to break the old moulds and capture new markets.
Sonali Ranade tweets @sonaliranade. Sheilja Sharma tweets @ArguingIndian. Views are personal.