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Telecom spectrum: A viable common pool resource?

By Harsh Doshi

Sunil Mittal, Chairman of Bharti Airtel came out with all guns blazing in his keynote address at the Mobile World Congress in Barcelona. A major takeaway from the speech was his idea for pooling spectrum. It would mean establishing one Common Pool of spectrum which all mobile network operators would be able to use as per their demand. The specifics of this idea were not fleshed out, however, although there are a number of ways this can be executed. The idea of spectrum pooling is not new to the world. Nordic countries use common spectrum and infrastructure. However, emerging market economies such those in South Asia and the Asia-Pacific are fairly new to this idea.

The big fish v. others

The last year saw an array of mergers and announcements in the telecom space. Reliance Jio entered the market with freebies for everyone, a month of which is yet to go. Jio announced that once they start charging for data, their tariff will be the lowest. The Vodafone-Idea merger has created the largest telecom player in the country. In response, Airtel took over Telenor in order to take advantage of its existing customer base, spectrum and infrastructure. With the presence of these three giants in the telecom industry accounting for 90% of the market share, the small players have little left for them. Amid all the mergers, talks of Reliance Communications and Tata Teleservices merging have caught fire too. However, with their insignificant market share, they do not pose any threat to the three giants.

Let’s digress a bit and discuss Economics 101. Common pool resources are rivalrous but non excludable. This means that common pool resources are subject to rivalry, and it is difficult to exclude people who are not paying for the good from using it. Let us use this in the context of spectrum as a common pool resource.

With three big players controlling the pool of resources majorly, they will control the prices of data and calls. Postpaid consumers in India pay high bills, owing to significant rentals and roaming charges. As compared to this, mobile phone calls in Middle Eastern countries have been free of cost since more than a decade. A common pool of resources, if it brings cost efficiency to the telecom companies, should trickle down to consumers in the form of low or no charges for phone calls.

Establishing a level playing field

The other angle to take here is about small players like Aircel, MTS and MTNL who have low presence in terms of both customers and infrastructure. A common pool of resources can lead to two things as far as they are concerned. Either they consolidate to make a mark in the market, or they get thrown out of it completely. The entry of Jio alone has led to a significant fall in call and data prices. Small firms have not been able to stand this cut-throat competition and stand the fear of further losing their ground.

Unless there is full consolidation of small telecom players, with a level playing field for all players in terms of customer base, infrastructure and capital, a common pool of resource will only disrupt the market. The giants will overpower the small firms in the race. It is important right steps be taken and fair competition be ensured before introducing a common pool spectrum as against the current system of spectrum auction.

This post first appeared on The Indian Economist | For The Curious Mind, please read the originial post: here

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Telecom spectrum: A viable common pool resource?


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