Sunday, February 10, 2008

Spectrum for Budget Balancing

Vasu Reddy from Chicago

There is a fix to just about every business and budget in the world. The on-going C Block spectrum auctions in USA have crossed 20 Billion dollars as of the 2nd week of February, and still have until June 2008 to close. This auction could fetch 30 billion or more when done, giving a nice chunk of change for the FCC and the USA government to erase some of the budget deficit.

This not only creates an extraordinary value for the US government in using the scarce resource in an already saturated mobile market, but also caters to the open access protocol being pushed by Google. This means that VOIP, Internet, Mobile and other content based services will be available on these new networks, creating opportunity for new generation of services and products. It is a win for the government, and also a win for operators along with a win for consumers who continue to crave the enhanced services. There is a great deal that can be emulated from this to the Indian market where the adaptation of value added services seem to be a natural for consumers.

The western markets continue to reap the benefits of selling airwaves and making big bucks for their governments, the Indian market is still coping with the 2G licensing and how to extract enough spectrum for the already outstanding LOI to multiple players in each market. 3G and other spectrum availability in India and how to place this in the hands of the market are still under bureaucratic and military consideration.

If the USA budget can get a healthy dose of good medicine with the 30 to 40 billion dollar C Block Spectrum money we can only imagine what can be done to the Indian Budget which can benefit from the same? The wonderful valuations for the mobile networks remain same irrespective of the markets they operate in. Be it the western markets or Africa or India, there is huge valuation for wireless networks, and global investors continued to put money in them.

Assuming that the Indian market will double in 4 years to 500 million users, it is absolutely necessary to release adequate spectrum to the operators. While doing so, there is no reason for the Government of India and DOT to use the auction process for releasing the new spectrum. The open auctions bring in global players and big investments into India. Some of the many benefits of open auctions include:

1. Fair play – I am not an expert in the policy making of DOT or have no opinion on how this spectrum is allocated now. But adapting to an open auction with majority of ownership with Indians as it is now is fair game. The global players and investors will definitely participate in the auctions, and let anyone and everyone who has the cash to bid, do so. Set minimal guidelines and use of spectrum deadlines, and let them bid. Set minimum bid price for a block of spectrum, define the usage guidelines and let it be open and transparent. The auction will create great wealth for India.
2. Huge new infrastructure investments for the networks – There is no doubt about the billions needed to construct networks, and people needed to run them. This is an area that has proven to be a boon outside of IT jobs. There will be hundreds of thousands of new jobs with each nationwide network, along with services, banking, maintenance, support, showrooms, manufacturing and whatever we can think of within the Industry. There will be growth in every village or town with the added communications. It is also possible that the manufacturers who are just shipping into India will all start to make their network and consumer products in India, so more jobs will be created. There is no question about the parallels in economic development with communications development, and the already robust growth in Indian economy will further speedup.
3. New Jobs – More jobs with more development is already an established fact with Indian economy.
4. Budget balancing – What better way to balance the budget by using the airwaves. It is not selling land or minerals or people force, its airwaves and they work for the benefit of the Indians truly with vast global investments coming into the market. It may not completely balance the budgets but billions will help in coming close to balanced budgets, and there is no need for any negotiations or backroom deals for open spectrum auctions. Let us just do them, and get the highest value possible for the airwaves.
5. Continued share of revenues – There is a constant revenue source for the DOT coffers with revenue sharing, and with the subscriber growth, it will continue to grow. No need for any planned collections or tax policies, as the operators are obligated to do this, and it is great revenue for the government. The more networks, the more users and more service fees.
6. Services at competitive pricing – I have already reflected on the cost per minute to the current Indian subscribers in January 2008, and with more networks the pricing will definitely come down. Along with the price drop, the services portfolio and customer focus will also improve with competition. The more networks we deploy, there will be more choice for the individual customer, and it is always better to have a choice, let alone multiple choices.

This is the 2008 annual budget time in India. The rapid growth in telecommunications subscribers and the need for spectrum is well defined. No one should complain about auctioning the spectrum and using the proceeds to budget balancing. By meeting market needs, creating competition and focusing on the customer and also erasing the budget deficit the Government of India will only serve its national interest.

Having watched the spectrum auctions in the USA for the last couple of decades, it is never late to get as much money as possible for the GOI for the scarce and very valuable air waves, especially in a market that will double in 4 years. We can really wipe out the Indian Budget deficit if the valuation of the spectrum reflects the valuations of the existing and potential customer base.

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