Telecom Disruptors

There is a veritable game of football being played between the Telecom Commission & the telecom regulator, TRAI, regarding the price for spectrum auctions, with the former disputing the floor price recommended by the latter. In such a slugfest, the sector is the unfortunate victim & bound to suffer.

Telecom firms are under stress; their balance sheets are weighed down by debt taken either for paying for acquisitions abroad or for paying for spectrum domestically or for both. There is a clear & present danger of disruptions rocking the sector too & the operators as well as the government are well advised to take cognisance of the same and initiate suitable policy prescriptions.

The likely disruptions are as follows

Disruptor 1: White spaces

“White spaces” are the unused broadcasting frequencies in the wireless spectrum, generally in the range of 470-790 MHz; it varies with time & location.  TV networks leave gaps between channels for buffering purposes which can be used for offering wireless services. While a typical Wi-Fi can travel through 2 walls, white space technology can travel upto 10 Kms through vegetation & buildings, thereby providing a higher range which translates into lower costs & hence promotes ”affordability”. In a paper presented, Gaurang Naik & others have indicated that the UHF TV band, in India, is in the 470-590 MHz range & about 70% of the same could be freed through this approach.

“White spaces” have been tested in many countries, including the UK, US, Singapore, Tanzania & South Africa. In North Carolina, from 2011 onwards, it has been used to monitor water levels, turn on & off park lights remotely, offer public broadband & connect infrastructure; clearly promotion of the same has many public policy advantages including the creation of “smart cities”- the pet project of Prime Minister Modi.

In June, 2013, the US Federal Communications commission (FCC) allowed Google to operate the national database detailing which bits of "white spaces"  are available in what area & at what time. Google has developed a software program that logs into the database using an API (Application protocol interface) & helps devices find configuration details without human intervention. The API, to individuals, is free while a commercial license is issued, for businesses. Adaptrum, the first business paying for such access, offers public Wi-Fi, at West Virginia University.

This disruption opens up the enticing possibility of a new operator selling routers to customers who can log on to “white spaces” & consume telecom services perhaps at very attractive rates, bamboozling the existing telecom business models in the bargain.

Disruptor 2: Alternate Network connectivity Mechanisms

Facebook is engaged with experimenting with solar powered drones & Google with “loon” balloons to provide network connectivity. Further, femto cells, sold to consumers to be installed at homes, have the potential of creating Wi-Fi spaces & certain innovative operators could take advantage of such a scenario.

Google’s Project “loon”, consists of balloons that float in the stratosphere and travel in the desired direction taking advantage of wind layers. In partnership with cellular companies they share spectrum & provide connectivity to people. While land based infrastructure could be demolished during natural calamities – as it happened in Uttarakhand, Srinagar, Vizag et al - the stratosphere based one works at all times & also serves the cause of .disaster recovery. This technology has been tested in New Zealand, US (California) & North-Eastern Brazil

Facebook plans to launch solar powered drones flying, “above weather, above all airspace” between 60-90000 ft. above the ground. While it is currently constrained by the regulation regarding every drone being necessarily manned by a human, it has identifies 21 locations in Africa, Latin America & Asia where it is planning to test the technology next year.

Disruptor 3: VOIP & OTT

VOIP (Voice over Internet protocol) like Skype & Viber have the potential of cannibalizing the voice revenues of operators. Airtel, therefore, attempted to challenge “net neutrality” principles, though it has no legal sanctity yet, by launching a controversial product with other telcos planning replication. However, airtel was forced to beat a hasty retreat, soon, under public pressure and perhaps a nudge from the regulator. Chile, Brazil, Slovenia & Netherlands have net neutrality laws that mandate treatment of all internet traffic equally & forbid preferential access to any content or app players by telcos, obviously, for a consideration.  Chile’s laws go a step further &  forbid “ zero rating” of services as per which players like Google, Facebook et all tie up with telcos to offer basic versions of their services to customers without charging for data, perhaps, as a quid pro quo for offering a share of a their hi end service revenues to the telcos.

The EU parliament, in April 2014, has voted in favour of net neutrality which shall be adopted as a law once ratified by the EU council of Ministers.  Obama has come out strongly in favour of the same in the US. Telcos, therefore, should brace themselves to experience a drop in voice revenues; will their data revenues grow to more than compensate the loss is however left to conjecture.

Disruptor 3: Death of SMS, Roaming et al

Established telcos are getting jitters not only from tech changes alone but also changes in consumer behaviours affecting the existing revenue streams of operators. As an example, SMS is dying a slow death with the growth of messenger services. Apps such as BBM (Blackberry messenger) which is now O/S agnostic, WhatsApp, WeChat et al can create a tsunami in the industry wiping out established players & business models in the process. As a counter, Bharti-Softbank has launched its own messenger service HIKE on 12/12/12 which shall serve as a good insurance against implementation of “net neutrality”.

Roaming revenue too is being seriously challenged by players like Skype & the regulator with the intention of creating a truly “One country” plan.  PBX, too, is now available on the cloud and call centres are being offered as a service.

What should the governments do?

Governments face conflicting interest groups while deciding on the contours of telecom policy. At one end is the lure of auctioning spectrum that has the advantage of ensuring windfall cash flows that help plug budget deficits; such a course shall help Governments to escape accusations  of discretion in decision making, favouritism & the attendant court cases there-off. At the other end of the debate spectrum is the need to promote “affordability”- a euphemism for cheap prices- for consumers. Readers are advised to jog down memory lane to 1999 when GOI, faced with a similar crisis, transitioned to a “revenue share” regime that is accepted as the genesis of the telecom revolution. Therefore, to promote “affordability” the government has to keep spectrum auction prices low or lower spectrum usage charges -currently trending between 3-8% except for BWA of 2300MHz which is at 1%- or reduce revenue share to revive the sector’s fortunes. Rolling out spectrum trading rules & a roadmap of spectrum auctions shall help the telcos plan their long term business plans.

Government should stop being myopic & plan long term for disruption of the existing telecom business models is but a harsh reality.