Interview: JS Deepak, Telecom Secy

The Indian Government has put a huge 2,300 MHz of spectrum on sale for which auction will start on October 1, 2016.  From the industry and analyst points of view there has been an issue of spectrum pricing that can cause a muted response to the auction. Some quarters feel that the October auction is too soon since the last one and the sale of spectrum of this magnitude could undermine the demand. But Telecom Secretary JS Deepak feels otherwise. In an exclusive interview to Bureaucracy Today, the senior bureaucrat says that due to continuous network expansion and technological upgrading and its offering a bouquet of services on both voice and data in an ever-evolving sector, the telecom players are always starved of spectrum. He also talks about the factors due to which the two telecom PSUs, BSNL and MTNL, are lagging in competition, the reforms introduced by his Department to improve the “ease of doing business”, policy issues that could remove possible grey areas of rules like network testing guidelines and giving extra powers and an action plan on call drops to the TRAI which are under the Government’s consideration. Without getting into specifics on the ongoing tussle between private telecom company Reliance Jio and incumbent operators Bharti Airtel, Idea and Vodafone, Secretary Deepak says their networks should be connected to each other for the sake of mobile customers. 

 

BT: Has the entry of Reliance Jio as a commercial telecom operator now with its deep pockets and future technology pipeline improved the chances of a better offtake of 4G spectrum at the October auction?

JS Deepak: All the spectrum auctions that the Government had held earlier witnessed good competition. Reliance Jio was a bidder in the past. Now that this company has launched its mobile services, it would need more spectrum. Reliance Jio bought spectrum earlier also in 2010 and 2015. We do expect that there will be h demand for spectrum in this auction from all the operators, including Reliance Jio.
 

The high price of 700 MHz spectrum could be a problem given the heavy debt of the private telecom sector. Most of these companies are also in the process of expansion in 3G spectrum areas.
 

The October spectrum auction could be the most efficient one for LTE operations. The 700 MHz spectrum can reduce the cost of capital expenditure by about 1/3 for supporting the same number of customers. It has advantage for coverages, especially indoor coverage. Therefore, a high quality spectrum like this one is expensive. In a free auction there  would  be operators who will value this band  and will bid for it.
 

BT: Which are the bands that could witness maximum demand? 

JSD: In addition to the 700 MHz band, the Government has also put spectrum worth Rs 1.50 lakh crore at the October auction. This includes spectrum valued at Rs 27,000 crore which has been acquired through harmonisation in the 1800 and 800 MHz bands. There are a lot of airwaves in the  800, 1800,  2100 and 2300  bands. All of these bands could attract demand as they can be used for 2G, 3G and 4G purposes. Many operators need spectrum for these services.
 

BT: Between 3G and 4G which will be the driver of this auction?

JSD: Spectrum will be bought for all these services –2G, 3G and 4G. The operators have gaps in both voice and data spectrum and they will buy spectrum accordingly. All companies have a shortage of spectrum. There are many prospective bidders. They have a shortage in their present spectrum holdings to cater to different types of services. We are offering 2,300 MHz of spectrum for sale to meet the requirement of every operator in any band in value, volume and variety.  Another significant feature of this auction will be that it will once and for all remove spectrum scarcity from the Indian telecom sector.
 

BT: But that’s a lot of spectrum on sale...

JSD: The Government does not expect to  sell all of its spectrum though it sees demand for many bands. There could be huge demand for the 1,800, 800 and 2,300 MHz bands. If some spectrum remains unsold, we will sell it at the next auction. That is not a problem for us at all.
 

BT: What is the realistic estimate of revenue that the Government could get from the October 1 spectrum sale? Is it closer to Rs 5.56 lakh crore?

JSD: It is not possible to imagine a number or the revenue that the Government would get at the spectrum sale. We have no fixed figure. It all depends on the market.
 

BT: The Telecom sector is back to facing disputes – Inter-operator fights over interconnections where customer is the ultimate loser and issues relating to the removal of Interconnect Usage Charges (IUC) where the incumbents and the TRAI have locked horns. Has the DoT any role to play for a healthy competition?

JSD: When a new operator enters the market, there is a certain amount of upheaval. These kinds of things will happen. Interconnect is in the domain of the Telecom Regulatory Authority of India (TRAI). It will take steps. It has already held a meeting with both sides to sort out their problems. I agree that if there are different networks, they have to interconnect with each other for providing good quality of service.
 

BT: But it is not that simple to solve the problem. Reliance Jio and the GSM operators are in bitter fight over the interconnect points and network trial period issues and other related matters. What is the DoT’s view on these problems? 

JSD: There will be arguments over this matter from both the sides. The TRAI is looking into it and it will do its best to sort out the issue. TRAI should be given a chance to solve it. The matter falls in its jurisdiction.

BT: Are any Government guidelines coming regarding the network testing system?

JSD: There may be a case for prescribing a test period and other parameters of a network for such trial period . The DoT has made a reference to the TRAI on this issue and we will come out with rules. This is a grey area not well defined.
 

BT: The TRAI’s longstanding demand is to get more powers, specifically that of imposing a penalty. Has it made the DoT think about it? 

JSD: I don’t agree with the view that the TRAI does not have adequate powers to fulfil its functional requirements. Under the Act, they have all the authority on interconnect and tariff matters. The TRAI has made a recommendation to the DoT seeking certain amendments to the TRAI Act which is under the DoT’s consideration. We are processing it. We should have a decision soon on it.
 

BT: The call drops issue is high on the agenda of the DoT? What is your department’s action ahead? 

JSD: The call drops problem may arise because of the scarcity of spectrum, sub-optimisation of the network, inadequate infrastructure and towers and technical issues. The October 1 auction will take care of the spectrum issues. The operators have to make more investments in the network sphere. We have been monitoring their efforts and they have given us a 100-day plan to improve  the  call drop  situation in Delhi and Mumbai. Though the situation has improved in these two metros, it is still not satisfactory. We have made the DDA reverse its bylaws to allow  the telcos to set up their towers in Delhi residential areas. In addition, we are facilitating the setting up of towers in the Lutyens’ Zone of New Delhi, NDMC areas, post offices and other Government buildings to offer good connectivity.
 

BT: Why are the two telecom PSUs lagging in competition? 

JSD: Both BSNL and MTNL are suffering losses. There is much scope for improvement and we are working on it. The basic problem is their huge staff cost. For Mahanagar Telephone Nigam Limited the staff cost is 67 per cent of its revenue and for the Bharat Sanchar Nigam Limited it is 50 per cent. The staff cost of private operators is between 3 per cent and 5 per cent of their revenues. So these PSUs are unable to compete due to the large burden of their staff.  But in the case of the BSNL most of its staff members who were absorbed into it due to its corporatisation  are retiring  in the next five years and the cost is likely to come down. In the case of the MTNL, it is a bigger problem. The BSNL has improved its performance. In 2014-15, it posted operating profit and in 2015-16 also, it is likely to post higher operating profits. It too is improving its performance.
 

BT: The telecom industry is consolidated. Do you think more mergers and acquisitions will be coming?

JSD: Consolidation is beginning to happen in this sector. It is good for the sector. The ideal number of operators is four to five. In most countries there are less than four operators. In India there are about eight operators. There is a need for consolidation.
 

BT: What more the Government is doing to take the telecom success story forward?

JSD: The focus of the DoT is to improve the “ease-of-doing business” with a series of reforms. We have done harmonisations of spectrum which was a longstanding demand of the industry. This resulted in the separation of defence spectrum from commercial spectrum. Consumers now get a better quality of services and through the process of harmonisation we have been able to get out spectrum which was otherwise used for filters and guard bands. Additional spectrum worth Rs 27,000 crore generated through harmonisation is also being put for auction. This is a major step in our reforms agenda.
 

The second big reform we have  introduced  the  virtual operators network licences.  This is a reseller’s licence which was absent in India. For the first time, we have a provision according to which the network and the service provision can be separated. It is a franchise model where virtual network operators can buy bulk bandwidth and data or voice and sell it for niche customers in special packages. An airport can sell its own SIM card, not only voice and data but    also  other information needed by air travellers.
 

The third big step is that now Aadhaar-based e-KYC which is available for customer acquisition. It simplifies the process and makes it paperless. Now a customer get a SIM card activated by verifying themselves online through their biometric. Apart from benefitting customers and operators, this has helped security agencies as they now have online proof of the identity of the SIM card holder.
 

The DoT has plans to improve telecom infrastructure in different parts of India. In the North-East we have launched a project for providing connectivity to every village in that region. In the Left-wing extremist areas of 10 States, the DoT has set up 2,200 towers to provide mobile connectivity to villages not connected earlier. We are doing the same thing in Andaman and Nicobar islands through cables.  
 

BT: What is the next course of action by the DoT?

JSD: In the upcoming days, there will be more DoT action on reforms. Our target is to have one major reform each month. We are working on right-of-way rules to facilitate the rolling out of fibre infrastructure and towers, simplifying the licensing process and making SACFA clearances automated and online.