In Business Model, Internet Access, Mobile, Spectrum, Spectrum Futures Conference

India’s call drop problem seems to be stymied, some would argue, because relationships with the ecosystem are essentially broken, with the highest levels of tension between mobile operators and regulators. As is typical in the case of broken relationships and lost trust, each side blames the other.

Mobile operators say calls drop because there isn’t enough spectrum available and it is too hard to set up new cell towers. Regulators say the mobile operators have chosen not to invest enough in their networks.

At the same time, some would argue, high taxes and costly regulations likewise hinder suppliers of Internet access services in India.

Taxes are a significant part of the cost side of the business model for most businesses, including Indian mobile operators, who historically have paid a five percent spectrum usage fee for use of spectrum, in addition to paying for spectrum licenses that confer no perpetual property right.

So it ought to be helpful that India’s Department of Telecommunications has lowered annual spectrum usage charges from five percent of revenue to three percent of for all spectrum acquired in the upcoming auction.

A lower one-percent charge is applied to 4G spectrum purchased by carriers in 2010 auctions.

The rule change could mean either higher profit margins or more ability to spend on spectrum.

These are illustrations of a more-aligned and misaligned ecosystem. Where every crucial segment of a value chain is not fully aligned, or at least not aligned, it is difficult to encourage robust investment, better quality services, lower prices for consumers and yet sustainable profits for suppliers, across the value chain, while meeting government social goals of universal service and high quality services for citizens.

Some illustrations of the telecom value chain start with equipment providers and terminate with service providers. Some of us would say the full ecosystem starts with regulators, includes chip suppliers, taxing authorities, numerous other consultants or services suppliers and terminates (the ultimate objective) in useful, affordable, high-quality services for consumers.

A corollary is that, ultimately, all revenue in the value chain is generated by consumers and businesses who buy the services, which creates the flow of revenue back across the whole value chain (including revenue for government from spectrum sales, on-going tax and fee revenue).

The other corollary is that “revenue” for one segment is “cost” to the next. And that is why any undertaking as big as providing high-quality, affordable Internet access to everyone requires both ecosystem alignment and an understanding that ultimately, consumers pay most of what constitutes revenue across the value chain.

The exception is that third parties (advertisers) are a key revenue source in the application and content portions of the ecosystem.

The key point is that, if the objective is high quality but affordable services for citizens and consumers, then all other costs within the rest of the ecosystem matter, and matter greatly, since most other costs ultimately are paid either by consumers directly or by advertisers or other business partners.

That might suggest the crucial value of developing new sources of revenue that help contain direct end user costs.

Such concerns are precisely why Spectrum Futures takes an ecosystem view of how to rapidly bring Internet access to everyone across South Asia and Southeast Asia. Full alignment of the full ecosystem is required.  

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