NIPT is expensive, but India can’t afford to miss out

For a while now, science has allowed parents and doctors to stack the deck in their favour. At least to some extent. Various prenatal screening methods have allowed expecting parents a glimpse of the risks facing their unborn children. A chance to avoid having a child that will endure a compromised quality of life, or at least the opportunity to prepare for the challenges to come.

But these, too, are far from perfect. A trade-off between accuracy and safety. Non-invasive methods such as triple or quadruple screen tests are safe. However, with detection rates of 69% and 81%, respectively, there’s still a decent amount of uncertainty. Then there are the invasive procedures such as chorionic villus sampling (CVS) and amniocentesis. Highly accurate (98-99%), but with grave risks. In CVS, the risk of miscarriage is 1 in 200, while amniocentesis is slightly less risky, with miscarriages occurring in only 1 out of every 1,000 cases. Russian roulette, indeed.

A new generation of testing, however, may provide the succour that so many expecting parents desperately crave.

Non-invasive prenatal test (NIPT), developed in 2011, is the gold standard of prenatal testing. It requires a small amount of blood drawn from the mother’s arm, testing the child’s genes in the mother’s blood. Since it’s non-invasive, the risk of miscarriage plummets to zero. If that wasn’t already proof of its superiority, NIPT diagnoses 85% of all chromosomal abnormalities and has an accuracy of over 99%.

A no-brainer then, right?

Ideally.

NIPT has taken the developed world by storm. They are convinced that it is the prenatal test of the future. First introduced in 2011 in the US, the UK’s National Health Service is going to offer it to about 10,000 women this year who are considered at greater risk of giving birth to a baby with genetic disorders. In Canada, health insurers have started covering the test.

Back in India, though, things aren’t so straightforward. The path to mass adoption is strewn with obstacles. From affordability to convincing doctors, patients, institutions and governments of the benefits of NIPT over other methods. Will India embrace the future en masse? Or is NIPT destined to remain a luxury afforded to only the affluent and aware?

Genomics-based diagnostics company MedGenome is banking on the former. The company, which boasts of having the largest genome sequencing centre in south-east Asia, claims to be the first mover in the area of NIPT. But the first mover advantage goes only so far when the technology is readily available.

Convincing and kickbacks

As with any pioneering technology, education is the first step to adoption. To this end, MedGenome has spent the last two years conducting continuing medical education (CME) activities with societies of doctors as well individual doctors. “Clinician awareness is more important than patient awareness in India because they prescribe tests,” says V L Ramprasad, Chief Operating Officer of MedGenome.

In keeping with this, the company also published the first India-specific NIPT study earlier this year, to convince stakeholders that the benefits of NIPT are valid in India, too. The study, which analysed the results of over 500 women with low or high-risk pregnancies across 10 Indian hospitals, showed that NIPT is as effective on Indian women as it is abroad. With an accuracy rate of over 99%.

MedGenome’s efforts to educate and convince doctors have begun to pay off. Some doctors have adopted NIPT after being convinced by MedGenome’s study. Dr Arvind Kasaragod, Medical Services Director of Cloudnine hospitals, is one of them. For the last six months, Cloudnine, India’s leading chain of maternity hospitals, has offered its patients the option of NIPT.

Other doctors have been forced to see the light after conventional tests were found lacking. To illustrate the dangers of sticking to older testing methods, Ramprasad takes the example of Narayana Health in Bengaluru. In November 2017, a couple filed a complaint of medical negligence against the hospital after their baby was born with Down Syndrome. Conventional tests employed by the hospital failed to detect the genetic abnormality in the foetus.

According to a doctor and senior executive with a corporate hospital chain, who asked not to be named, there’s another, far murkier reason for some doctors not getting on board. Kickbacks. NIPT labs do not offer kickbacks for doctors who prescribe the procedure. The problem of kickbacks recently came to the fore in Telangana, where the Telangana State Medical Council (TSMC) issued notices to private labs for paying doctors a commission for referring patients to these labs. This practice often goes unchecked because state medical councils do not have authority over labs, reported The Lancet in 2o13.

 

All licensed out but MVNO where to go

Aerovoyce, in April 2017, managed to launch its first fibre broadband service through a tie-up with BSNL. It also launched voice and data services under its own brand name in December 2017, with rates starting as low as Rs 79 ($1.1) per month for 1GB daily data, coupled with unlimited calls.

Today, Aerovoyce is live in the Tamil Nadu circle. But things seem bleak. MVNO has no takers. Consumers want none of it. Aerovoyce has just about managed to launch a commercial business out of Chennai. Before they can pick up, though, MVNOs are facing multiple crises. Their average revenue per user (ARPU) is falling. There’s no comprehensive regulation. Taxes are skyrocketing. Established operators are giving it the stink eye. And if all of these weren’t enough, there’s an acute shortage of high-quality spectrum.

All in all, ouch.

If this weren’t enough, as of May 2017, 61 companies with a telecom background have acquired MVNO licenses from the Department of Telecommunication (DoT). The licenses were handed out almost a year after the DoT approved the entry of MVNOs in India. More companies have applied for licenses but they’re yet to be approved.

But wait. If MVNO has tanked, beyond Kuppusamy and his team, is anyone affected? And if so, why is DoT still doling out licenses? Does India even need these right now?

Solid precedent

Kuppusamy, to his credit, was onto something. A graduate from Salem, Tamil Nadu, he found his footing in Zurich, Switzerland, working with big telecom players such as NTT Docomo, SWISSCOM, and others for 18 years. He wanted to, to use this football World Cup’s favourite catchphrase, bring it home.

The MVNO or the ‘mobile VNO’ business is largely a successful model. It has captured anywhere between 10% to 40% share in developed telecom markets like Europe and the US, according to a 2013 report by management consulting firm McKinsey. VNOs purchase voice and data in bulk from existing telecom players and then resell those minutes and data to the end customer under their own brand name by ‘virtually’ riding on an established operator’s network.

During Aerovoyce’s launch in April 2017, Kuppusamy told MediaNama that his company would cater to the rural population in Tamil Nadu, especially in remote pockets with populations of up to 20,000 people. He claimed to have put in Rs 300 crore (~$43 million) as an initial investment before dubbing his rural-first approach as the company’s “biggest strength”.

Except, this “strength” clearly wasn’t enough. Today, Kuppusamy’s company has put broadband services on hold. One of Aerovoyce’s distributors in Coimbatore said that the company is only selling SIM cards bundled with voice and cellular data. An official spokesperson, however, said that Aerovoyce has sold more than 5,000 SIM cards since its voice and data launch in December 2017 and is targeting to sell 1 million SIM cards as its first milestone. The spokesperson didn’t mention a deadline.

Now, Kuppusamy’s Aerovoyce may not ring a bell for all, but its timeline has moved alongside the most talked about telecom company’s launch. That’s right, Jio, which launched in September 2016, had added 56.18 million users by December 2016. This, opposed to Aerovoyce’s 5,000.

How could Aerovoyce grow or compete in a market where data gets sold for as little as Rs 19 (~$0.27) per GB? And what of the 61 others sitting on shiny new MVNO licenses with nowhere to go? The dilemma is the same.

The Developing Stage

In the US, top operators such as AT&T and Verizon have more than 10-20 partnerships with MVNOs, and they have slowly become the operators’ secret weapon to keep up with the competition. However, in developing markets like South Africa, around 20 MVNOs account for 0.6% (5 million) of the overall mobile connections. The share of MVNOs in developing markets such as South Africa and India is minuscule, mainly because telecom operators fear cannibalisation of their own revenues.

However, telecom experts argue that traditional cellular operators cannot become the only sellers of communication services. “MVNOs come in where the operators do not have the expertise in managing their business,” said a top executive of a telecom equipment manufacturer, who requested not to be named.

For instance, an operator may find it difficult to cater to a hospital chain that requires customised telecom services as hospitals need uninterrupted connectivity and a dedicated customer care line. “They [operators] can instead tie-up with an MVNO and resell to hospitals while taking a revenue cut from the MVNO,” he added.

 

Daga, though, has a plan to dethrone Vini Cosmetics

“It was a competitively priced product, and in a few years, gained a market share of 13% in northern and eastern parts of the country,” Daga recounts. This, despite competition from far larger companies like Hindustan Unilever Limited-owned Ponds and Emami.

To compete with these bigger players, Daga knew he had to take Heaven’s Garden to the next level. He took out a loan and set up a manufacturing facility in Odisha. He launched two new product categories—soaps and antiseptic creams. Both categories were a part of Daga’s scented product line.

The Odisha facility was stocked to the rafters with new products. The year was 1999. A bad time to be in Odisha. A super cyclone was on its way, and Daga’s fortunes were about to nosedive.

The 1999 Odisha super cyclone razed Daga’s facility to the ground. Like his facility, Daga’s plans lay in ruin. He was knee-deep in debt and fresh out of luck. The cyclone is an unpleasant memory which he has locked away. One can tell it was painful. If you ask about the losses, he just shrugs.

Once burnt, forever shy

The cyclone passed, but there was still a storm for Daga to weather—debt. He would spend the next few years paying off his dues. By 2006, Daga had paid off his debt. His company was reduced to just its flagship product—Heaven’s Garden. Finally on steady ground, he set about rebuilding.

The only thing he has known and loved are fragrances. So he started there. The idea was simple—extend his product line to deodorants and perfumes. Secret Temptation, their women’s offering, was launched first. A few months later, Wild Stone was launched for men.

While Daga wanted to focus on Secret Temptation, Wild Stone was a bigger hit. The timing was perfect. Not only was the men’s deodorant market already larger than the women’s, it was just gathering momentum at the time as well. Additionally, Wild Stone’s advertising was a hit. Taglines like ‘Wild Stone: Wild By Nature’ were a hit. “Advertising did wonders for us, and Wild Stone became a household name,” says Daga.

Wild Stone grew rapidly in the late 2000s and was on its way to beat Hindustan Unilever-owned Axe which dominated the market. Building on the deodorants’ success, the Wild Stone product line was extended to include perfumes, talcums, soaps, and shaving creams. Secret Temptation was overshadowed by Wild Stone’s success.

But as the brand was gearing up to take control of the market, it hit a speed bump. In 2011, another home-grown company, Gujarat-based Vini Cosmetics entered the fray, introducing the market to liquid-based sprays rather than the existing gas-based ones, a move which was later followed by most players including McNROE. Vini’s ‘no-gas’ deodorant brand Fogg took over the market, leapfrogging Wild Stone and even dethroning market leader Axe. Its popular tagline ‘Fogg chal raha hai’, which claimed that Fogg lasted longer than gas-based deos (because liquid doesn’t vaporise easily), made it more popular than any other deodorant brand.

Since Fogg’s entry, business has been hard for McNROE. Neither Wild Stone nor Secret Temptation has been able to topple Fogg, even after launching new products with a no-gas proposition. As of March 2018, Wild Stone was the fourth-largest deodorant product by volume after Fogg, Nivea and Park Avenue, according to the Nielsen study.

But Daga has dealt with worse. Now, he’s ready to hit back.

Scents and sensibilities

Daga’s stopover (and my meeting) in Delhi is part of a multi-city tour. This tour, encompassing visits to Kolkata, Hyderabad, Delhi, Mumbai, Chandigarh, Lucknow, Ahmedabad, and Bhubaneswar, is about tom-tomming McNROE’s brands, especially Secret Temptation. “It is an under-tapped category, women’s deodorants. So far, the deodorant market has been dominated by men-oriented products,” says a brand consultant, who has worked with McNROE. He is not authorised to speak with media.

For a few years now, the deodorant segment has been growing rapidly. Between 2015 and 2017, the market grew by 22%, according to data from market research firm Euromonitor. While Euromonitor does not have a split for the male and female segment, the growth has been led by men’s products only, according to industry executives. Finally, the women’s market, aided by an increase in the number of women in the workforce, is where the opportunity lies.

 

No easy cure for Quick Heal

With the market cornered and distribution sorted, Quick Heal made a big decision in 2016—it went public. Quick Heal listed on the Indian bourses, becoming the first Indian IT software security products company to do so. As the first of its kind to list in the public space, and with the market position it had, Quick Heal’s initial public offering (IPO) received a subscription call from more than a few brokerage firms. Angel Broking, Aditya Birla Money and India Infoline (IIFL) were among the firms that showed an interest.

All of them saw opportunity. Internet penetration in India is increasing, cybersecurity threats are rising globally, mobile phone security has huge potential. Poised to benefit from all of these factors, Quick Heal was an attractive prospect. But that’s not how things played out.

Quick Heal was supposed to grow with the internet in India. It hasn’t. Internet penetration in India has grown from 8.5% in 2010 to 36.5% by the end of 2017. With over 460 million users, India is now the second largest online market in the world. In comparison, Quick Heal’s growth rate, meanwhile, has been reduced to single digits since its listing.

While other players in the segment have increasingly moved towards newer business models, like Czech cybersecurity firm Avast did when it pioneered the freemium play in the antivirus space, Quick Heal has stuck to its guns. This resistance to change, though, is looking increasingly untenable. Sure, 23 years since its inception, Quick Heal continues to have the biggest chunk of the market in this segment. A 34% share. Its distribution network is larger than ever— 21,401 retail channel partners, 527 enterprise channel partners, 164 government partners and 12 mobile distributors, as per their FY18 annual report. But this isn’t reflecting in their earnings.

A flat tyre

Before listing, the company’s revenue grew at a compounded annual growth rate (CAGR) of 17% for the period FY12-FY16. Brokerage firms which initiated coverage of the stock back in 2016 had estimated the growth to continue at a similar pace. Jefferies, for instance, had estimated a growth rate of 16% for FY16-FY19. Spark Capital, which was slightly more conservative, estimated a growth rate of 13% for FY16-FY18. Both, as it turns out, greatly overestimated things. Quick Heal’s revenue growth rate for FY16-FY18 stands at merely 2.65%. Almost flat. What happened?

Disruption.

Quick Heal has a heavily concentrated business in one segment and only one geography—India. More than 80% of Quick Heal’s revenue comes from the retail segment. Only around 3% of its revenue comes from outside India.

The lack of diversity has made it massively vulnerable to disruption. Two factors have led to this disruption:

1) An increased number of both domestic and foreign competitors.

2) The availability of free, fully-functional antivirus software by nearly everyone in the market.

For FY18, Quick Heal’s profits saw some upward movement on the back of reduced expenditure, lower R&D costs and improved EBITDA margins. The growth in number of licences sold has also dipped. For the period, FY13-FY15, the growth rate in active licenses was 20%. This has dropped to around 7% for FY16-FY18.

The company blames demonetisation and GST for the slowdown. “The channel community, which drives majority of our business, was also severely impacted by these moves. This ultimately resulted in slower revenue growth than what was initially expected,” says Sanjay Katkar, Joint MD and CTO at Quick Heal, in an email reply.

The Growth

Katkar goes on to argue that the company’s financial performance has improved since, with revenues in Q1 of FY19 in line with internal growth projections. Quick Heal, he says, expects this to continue. Indeed, compared to the same quarter in FY18, Katkar points out, Quick Heal’s revenue grew 75% to Rs 53 crore (~$7.6 million), and profits stood at Rs 6 crore (~$868,380), a jump of 154%. But this is little more than a clever sleight of hand. What Katkar is doing is cleverly benchmarking against one of Quick Heal’s worst quarters—Q1 FY18, when the company was still suffering the effects of GST—to make the present results seem more impressive than they actually are.

This reality has reflected in the performance of Quick Heal’s stock after it announced the company’s results. Quick Heal announced its result post market hours on Wednesday. It saw no buying over the next two days. The price dropped by around 6.7% from its Wednesday closing to end the week at Rs 261($3.78)/share.

 

The age of free! free! free!

In the book, Free: The Future of Radical Price, Chris Anderson, the editor-in-chief of Wired magazine, wrote that “every industry that becomes digital, eventually becomes free” because of the development of the internet economy. The cost of reaching customers is becoming really cheap, rapidly moving towards a new kind of free-dom.

This has very quickly become the norm in the antivirus industry.

The age of the freebies began with Avast, which, in 2001, disrupted the market by taking the risk of offering the full version of its flagship antivirus software for free. “Avast’s business model is built on freemium,” says Ondrej Vlcek, EVP and CTO at Avast. “This decision paid off, as we quickly gained millions of users who enjoy free protection from digital threats.”

Data Security

The world quickly started to follow Avast’s footsteps. In China, Qihoo 360—a local internet security company founded in 2005—had great success in the retail antivirus market by offering its antivirus software for free. As per US-based cybersecurity firm Opswat’s latest global market share report for July, Avast stood at the top with a 17.23% share, of which 14% came from Avast free antivirus.

Opswat does not include Microsoft in its report because they feel that its “products do not accurately represent the user’s product of choice as they come pre-installed on many Windows systems and cannot be removed.”

“This changed the entire market in China, and everyone moved from paid to freeware solutions,” says the marketing manager of a leading antivirus software company. He requested not to be named as he is not allowed to talk with the media.

Qihoo made its antivirus solutions free in 2008. Within a few years, it became the top antivirus software vendor in the Chinese retail segment based on the number of their monthly active users (MAUs), which stood at over 460 million.

As the market became increasingly reliant on this free antivirus solution, the retail market in China collapsed around 2014-15, he says. This, he adds, wasn’t just limited to the B2C segment but also crept into the B2B space.

But how commercially viable is the freemium model? Quite. Apparently, viability can be achieved in two basic ways. 1) By getting people to upgrade from the basic product to the premium product like Avast, or 2) Through online advertising and internet value-based services like Qihoo.

Vlcek says that today, around 75% of consumers use a freemium antivirus solution on their PC. “Avast’s 2017 revenue numbers were $780 million, with the major source of income being paid product sales. Out of our user base, about 4% use our paid products, which is a high amount given we have more than 400 million users,” he adds.

Here lies the gamble with this approach. You capture a humongous user base and hope that even a small percentage of that enormous set will pay for premium services. The large user base also throws up another advantage—lots of free data. This helps security firms stay ahead of the bad guys. “This is key to the success of our artificial intelligence/machine learning technology,” Vlcek says.

Last year, Russian internet security giant Kaspersky joined the bandwagon and released a basic version of its antivirus software. Microsoft, too, has begun bundling its homegrown Windows Defender Antivirus with its latest operating system, Windows 10.

Opportunity ahead?

Quick Heal also faces a massive freemium threat in the mobile security segment, a nascent market where Quick Heal sees huge future opportunity, and which, at present, contributes just 0.75% to its revenue. Reliance Jio, a company that seems intent on disrupting each and every sector in India, has entered this space. It has partnered with Norton, an antivirus program manufactured by American software firm Symantec, to provide a mobile security software called JioSecurity to its users. This will instantly get Jio a huge market share in the space, with Jio accounting for over 18% of India’s cellphone users.

Quick Heal feels that with the mobile security market being practically non-existent, the launch of JioSecurity doesn’t really impact the market share. Katkar remains defiant that the freemium threat does not spell doom for Quick Heal. He says that freeware does not provide the same level of advanced security that paid products do, and the growing awareness about the need for cybersecurity among Indian users makes them more likely to opt for a paid product. The same, he says, applies to the mobile security market.

 

5G to satellites: All your spectrum are belong to us

C-band spectrum technically starts at 3.7 GHz and goes up to 8 GHz. Of this, the band from 3.7 to 4.2 GHz is what the International Telecommunication Union (ITU) has harmonised for 5G use worldwide. However, mobile operators are even eyeing the lower C-band, from 3.2 to 3.5 GHz. India’s regulator, the Telecom Regulatory Authority of India (Trai) has proposed reserving 3.3 to 4.2 GHz as the primary band for early 5G introductions. A chunk of it, about 200 megahertz (3400-3600 MHz), is today being used for fixed satellite service for broadcasters. These will now be moved to another band to make way for 5G. In a meeting convened earlier this year by the Department of Telecom (DoT), the chairman of the Wireless Planning Coordination (WPC) wing assured the broadcasters and satellite operators that they wouldn’t be adversely affected.

Now with the FCC decision, which many see as a disruptive move in more ways than one, a frequency block as big as 500 MHz is being offered for commercial 5G use in the US. Finally, satellite operators and mobile operators will talk to each other even though broadcasters have known for a while that newer services are coming for their spectrum band. Not just the US, more than half dozen countries are seriously considering vacating spectrum in C-band for 5G cellular uses.

The Transition Phase

The debate in the US will rage around what all mobile operators will pay for in the transition and how satellite operators will share the booty. In India, the big question arises if it’ll finally consider the Department of Space (DoS) easing its hold on satellite spectrum and letting the Department of Telecom (DoT) allocate it. Will the silent turf war between the two departments come to an end? About time. Spectrum licensing in India is crying out for reform. It’s too complex with onerous clauses, distorted (across bands), and non-transparent when it comes to tracking spectrum usage in real time.

Fist-fights will ensue. Knives will be drawn. And satellite communication may never be the same. In the US, global satellite operator Intelsat and chipmaker Intel initiated the discussion with the FCC. It has since become a chorus, with many satellite operators joining the reallocation plan.

“It’s a fact that two competing situations have emerged for this frequency band. In the wake of the FCC decision, national administrators will have to keep their [spectrum] users’ and consumers’ interest in mind,” says the India chief of an international satellite operator, requesting not to be named. “But look at how this decision has come—it is suo motu initiated by Intelsat, a company with $15 billion debt on its books. They are being opportunistic, but it’s going to disrupt the entire ecosystem.”

Maybe, in the long run, it’ll work out, but right now it looks crazy and chaotic.

“Generally, whatever decisions the FCC takes, and whatever tech gets developed or gets precedence, it gets adopted in other parts of the world sooner or later. It’ll come to India also, and we have to be prepared,” says PK Garg, former wireless advisor to the DoT and ex-member Radio Regulations Board of the ITU.

All of this at a time when the government is ‘pushing’ for 5G.

Do telcos need more spectrum?

Nearly 300 MHz of spectrum in the 3.3 to 3.6 GHz band has been identified for 5G spectrum auction. The fixed satellite service operators in this band have mostly surrendered, or are in the process of surrendering that chunk of spectrum for cellular use.

This allocation has been done under the National Frequency Allocation Plan of 2011, which is under review even as you read this. “The government wants to push 5G; the satellite industry doesn’t want to be penalised, and 5G cellular industry has not quantified how much spectrum it requires and in what time frame. So everything is very dynamic right now,” says Garg.

That also whips up a perfect storm to address the C-band repurposing, certainly a new dimension in 5G planning.

To put it simply, 5G is a spectrum guzzler. Projections for 5G networks state the spectrum requirement at many times higher than 2G, 3G, and 4G networks combined. One of the reasons is that 3G or 4G required spectrum width of 5-10 megahertz. In 5G, contiguous bands are required, and telecom experts consider blocks of 200 megahertz and above in width as ideal, so as to allow networks to carry more traffic per user. That is, fibre-like capacity for wireless users.

 

The once formidable regulator

If there is one regulator you don’t mess with, it’s RBI. At least it used to be. One of the most powerful regulators in the world, it balances the jobs that four different entities would do in most other countries. From watching over interest rates and balancing cash reserves to being the banking and payments regulator. Notionally, it’s an apex regulator for financial services and rarely involves itself in micromanagement. But with data and software ruling financial services, RBI has been drawn deep into the tech world. From data localisation to digital wallet interoperability to know-your-customer (KYC) rules.

On some issues, like KYC and interoperability of wallets, its decisions are unilateral. But in areas of regulation like data localisation, the central bank is left open to political pressure. In fact, RBI’s payments data storage rule came in the wake of deliberations with the PMO over privacy concerns following news of Facebook user data being harvested by political consulting firm Cambridge Analytica. At the same time, Facebook-owned messaging platform WhatsApp had announced a plan to launch payments services in India without having a physical presence in the country. RBI doubled down on its data security efforts.

The Difficulties

“RBI is a sophisticated regulator, and far more difficult to deal with. So companies are negotiating with RBI from a distance. Lobbies like The US-India Business Council have gone to the PMO and Niti Aayog to help influence outcomes,” said the lawyer cited above.

But soon after the data localisation announcement, the finance ministry presented a new view and said the government was not opposed to data mirroring—i.e., keeping just a copy of data in India—creating more uncertainty, and a window of opportunity.

Currently, companies who don’t store data in the country, like Mastercard, Visa, Google and Facebook, are able to repatriate income and profits earned in India. And they are not taxed on those earnings here.

For instance, Facebook’s Indian arm—registered as Facebook India Online Services Pvt. Ltd—earned Rs 341.8 crore ($47.3 million) in revenue and Rs 40 crore ($5.5 million) in net profit in 2016-17. But it is structured as a business process outsourcing, or BPO, company that offers support services to Facebook itself. This way, the Indian arm only pays tax on the services it provides to its parent, but not on the revenue earned from Indian businesses buying ads on the social media network.

While Google has said it will store payments data in India, others like Mastercard and Visa, which are not taxed locally, said an executive at a payments company, have not made a move to invest in servers in India. These companies, said a MeitY official, know that even if they don’t comply, they won’t be asked to shut shop. The question is, who will blink first?

RBI has for a long time had a reputation for not blinking. But sometimes, it’s forced to. Last week, a panel formed by the Ministry of Finance came out with a payments and settlements system draft bill, which said that a payments regulator would be set up. So far so good. Then came the unexpected part. It said that the regulator would not be in RBI’s ambit, shocking those in the industry.

A disaster

“It will be a disaster if payments oversight moves out of RBI, more so for users,” said the executive cited above. RBI is very cautious about how it’s policies impact end users and keeps them in mind while issuing licences or clearing companies to operate in this space. “If payments move out of RBI, the heaviest wallet will win.”

This is a reflection of the growing influence of the government on RBI. “It was a strong institution earlier. While still strong, under this government it is not as strong as it once used to be. So it could succumb to political pressures,” said a Bengaluru-based tech lawyer.

Another example of this is the central bank’s defiant refusal to make Aadhaar mandatory for bank accounts, as it clarified in response to an RTI query in 2017. But before long, even RBI had to bite the Aadhaar bullet. Directions from the home ministry resulted in a 2017 guideline that any new accounts opened had to be linked to Aadhaar within six months of opening. UIDAI: 1, RBI: 0.

 

India’s tech policy landscape is in the middle of a turf war

“Some of Trai’s recommendations are classic signs of regulatory creep. Its recommendations on privacy, for example, show that it also wants to regulate content, going beyond regulating the pipe (telecom sector),” said Vinay Kesari, a Bengaluru-based independent tech lawyer.

The question of overreach brings to mind another institution—Niti Aayog. It pops up whenever there is a meaty potential for policy-making, even in some areas where the think tank is, shall we say, out of its depth.

Jack-in-the-box

Supposed to be an upgrade from the top-heavy and slow-moving Planning Commission, Niti Aayog is driven by the larger-than-life personality of its chief executive, Amitabh Kant. Its ambition was to take India into the next orbit of development by promoting federal cooperation. So almost four years into its first term, what the think tank has achieved and what drives its agenda is unclear.

Take for instance its recent paper on artificial intelligence (AI). It has sparked off a debate about jurisdiction and expertise. “AI is one thing in a bouquet of digital services being created for India. Yet AI has been singled out for special attention because orders come right from the top,” said a Niti Aayog official, requesting anonymity. At the direction of the PMO, an AI policy was put together within six months, even though Niti Aayog had neither the jurisdiction nor the expertise to start work on AI. “MeitY should be the nodal agency on this,” added the official.

In fact, not just MeitY, but DIPP and the Department of Science and Technology (which falls under the Ministry of Science and Technology) have all initiated plans on AI. The official mentioned above calls it the “schoolboy” effect: each one wants to show up the other in front of the top bosses.

While AI may be out of its comfort zone, what is in Niti Aayog’s (and Kant’s) forte is big companies. The ones that generate jobs, the ones that bring in foreign direct investment and the ones that make India look like a Mecca for doing business. But there is a growing disenchantment with that stance.

Policy as schadenfreude

Within Delhi’s corridors of power is a strong rumour that there is a growing rift between Kant and other more supposedly nationalistic (read, protectionist) members of the establishment and that has spelt trouble for this institution. “Members of the ruling establishment want to pull in a more protectionist direction,” said a Delhi-based policy expert.

This could be why Kant, and by extension Niti Aayog, were left out of the draft e-commerce policy group set up by the Ministry of Commerce. “Kant was furious. He demanded that the draft be sent to him,” said an official at Niti Aayog who watched these developments closely.

Niti Aayog fired off a set of serious objections to at least four issues in the draft e-commerce policy, namely limits on discounting, data localisation, opening up source code and charging customs duties on all transactions, mounting a strong pro-business defence.

“Kant’s insistence that the government shouldn’t bother itself with micro issues like localisation has not gone down well with pro-RSS economic think tanks. That’s why a more ‘nationalistic’ set of people, namely Dr Rajiv Kumar and Bibek Debroy, have been brought in to change Niti Aayog’s thinking,” said the policy expert cited above.

Debroy, now a member at Niti Aayog, is the prime minister’s top economic adviser, raising issues of conflict of interest. Kumar, also an economist, was appointed the second vice-chairman of Niti Aayog after Arvind Panagariya. He has previously held top posts in almost every Delhi policy think tank and industry lobby group worth its salt. One can find him lambasting the likes of Nobel laureate Amartya Sen and former RBI governor Raghuram Rajan for being fly-by-night “foreign economists”.

But protectionism too is under pressure from the intense lobbying against the draft e-commerce policy, which could altogether be dropped, according to a CNBC-TV18 report. As The Ken pointed out earlier, the draft e-commerce policy, which was leaked on 31 July, was seen as the return of licence raj; coming after RBI’s data localisation mandate, together these turned tech multinationals in the country pale.

 

The tail that wags the dog

Which brings us to UIDAI, or the Unique Identification Authority of India, the dark horse that rose to prominence.

For an organisation that started life as an entity attached to the Planning Commission and tasked with designing the technology for Aadhaar, both the entity and its founder, Nandan Nilekani, hold incomparable sway when it comes to any new moves in tech. So much so that it is viewed as being the organisation wielding most influence. Owing to this influence, Aadhaar authentication has snaked its way into several ministries as a prerequisite to gaining access to basic services, ranging from cooking gas connections to SIM cards to birth certificates, and soon even healthcare.

Identification Factor

While UIDAI’s jurisdiction is limited to regulating how Aadhaar functions, the identification system’s growing pervasiveness means it casts a much larger shadow.

The agency’s influence on policy-making is most visible in the inclusion of UIDAI chief Ajay Bhushan Pandey in the Srikrishna committee. “Pandey’s inclusion meant any real reform [on data privacy] with respect to Aadhaar could be kissed goodbye,” said the Bengaluru-based tech lawyer.

However, one move that could lead to conflict for UIDAI in the future is the idea of setting up a Data Protection Authority, or DPA, which was among the Srikrishna panel’s recommendations.

The DPA is expected to monitor data, issue directions, resolve disputes and also issue penalties. It’s a proposal that has got companies spooked. “The DPA is super onerous and super bureaucratic. It’s very arbitrary, and not independent enough, it would easily be the most powerful regulator if set up, as it would cut across all sectors,” said a public policy professional who works at a multinational.

The DPA is envisioned as a super-regulator that will work with other regulators. “The way DPA is proposed, it could be more powerful than UIDAI even at least on paper. It could allow users to complain against UIDAI even,” said the Bengaluru-based tech lawyer.

For now, though, UIDAI’s influence is only growing. It closely works with two entities at the centre of tech policy-making—MeitY and Trai. Wherein lies yet another story.

A mighty trinity?

MeitY covers all things tech. Trai comes in on mobile networks and the internet. Both play a part in data and cybersecurity policies, which is where UIDAI enters the picture too.

UIDAI as we’ve seen, reports to MeitY. And it’s close to Trai, a relationship that has roots in the fact that RS Sharma, the current chairman of the telecom regulator, was earlier chairman of UIDAI. Today, the telecom sector is invariably the first to adopt any new regulations that come from UIDAI. A case in point is the agency’s 18 August circular about facial authentication. Trai first asked the telcos to take up the new protocol in addition to fingerprint and iris scan.

With Trai largely aligned to UIDAI, and UIDAI aligned to MeitY, one could assume that Trai and MeitY are also in sync. But here’s the rub. The two are, in fact, getting into the habit of stepping on each other’s toes.

MeitY has been working on a cloud computing policy since 2013, which it is yet to release. In the meantime, Trai came up with its own version last month. Similarly, MeitY is working on a revision of the 2012 national electronics manufacturing policy. Almost as if to beat MeitY to the chase, Trai has already released recommendations for a local telecom manufacturing policy, on 3 August.

“While they both are mostly on the same page here, it is still not Trai’s business to come with recommendations for these. It is technically DIPP’s domain,” said a Delhi-based tech policy lawyer, referring to the Department of Industrial Policy and Promotion. “Trai is putting a foot in the door because it concerns itself with telcos.”

A quick recap of Trai’s job description here would help. It has the power to set tariffs that telecom firms can charge, as well as interconnection charges that one telco has to pay to another for calls between networks, and regulates quality of service. When it comes to other matters on telecom like licensing, licence fees and revenue sharing, Trai can only make recommendations, says Kunal Bajaj, a consultant at Ameya Tel, a telecom advisory firm. And the regulator takes its recommendation power pretty seriously.

 

The post-spectrum phase of Indian telecom

The same goes for Airtel, which similarly has no appetite for more spectrum. After its acquisition of Telenor in May—a deal which gave it 43.4 MHz of paired spectrum in 1800 MHz band across seven circles—Airtel’s CEO Gopal Vittal told analysts that Airtel had no need to invest in radio waves. This notion will only strengthen once the approvals for Airtel’s acquisition of Tata Teleservices are cleared.

Jio, on the other hand, has acquired spectrum from Anil Ambani-led Reliance Communications, 122 units of MHz across the 850, 900, 1800 and 2100 MHz bands. All told, the source mentioned above estimates that Airtel holds over 1,600 MHz of spectrum, while Jio is in possession of over 1,400 MHz. Vodafone Idea, meanwhile, has 1,850 MHz.

Participation in doubt

While this surfeit bodes well for the telcos, it throws a wrench in TRAI’s plans. TRAI wants another spectrum auction, which will include airwaves for fifth-generation mobile technologies—more commonly known as 5G—which can offer up to data speeds of up to 100 Mbps. TRAI has even recommended base prices for the same. But according to executives and analysts The Ken spoke to, the spectrum up for grabs is unlikely to find takers. Telcos are unwilling to participate in the auction, not only due to their ample spectrum holdings but because of what they perceive to be exorbitant spectrum prices—industry body Cellular Operators Association of India (COAI) observed that South Korea’s 5G spectrum auction was considerably cheaper. This, coupled with the debt levels of telcos, make any additional spending for spectrum unwise.

This disinterest stands in stark contrast to the situation in 2014. At the time, telcos—stung by the Supreme Court’s 2012 decision to cancel 122 telecom licences issued in 2008—bid aggressively for spectrum, driving prices through the roof. The incentive was simple, the SC’s verdict meant that companies which had been building their businesses for years faced the possibility of shutting shop.

The auction was considered a success, but there was a catch. It caused a price distortion for future auctions. Taking the 2014 results as an indicator, subsequent auctions in 2015 and 2016 saw base prices increase. The 2016 auction was even considered a failure, as the entire 700 MHz band went unsold. But the proposed 2018 auction looks set for a far worse reception, almost a repeat of the 2013 auction, which was boycotted by all telcos barring one on account of the reserve price being too high.

In the absence of the usual scramble for spectrum, telcos have other priorities. They are wagering that these, rather than spectrum, are where the real opportunity lies. In a sense, it would be true to say that the telecom industry is entering a post-spectrum phase. One where the emphasis is on better utilising existing resources. For instance, telcos want to strengthen their backhaul. Backhaul is the link between the core network and cell towers and sub-networks. These links can be made wirelessly through microwaves or optic fibre cables.

This change in focus is unprecedented in the history of Indian telecom, where spectrum has always been a driving factor. So, what does this brave new telecom sector look like? To answer that, we first need to delve into the financial health of the sector.

Debt row

In a post made in August, Parag Kar, a vice president for government affairs at telecom gear manufacturer Qualcomm, painted a gloomy picture of the financial health of Indian telcos. He estimated that operators in India make around Rs 1,60,000 crore ($24.05 billion) and pay out around 24% of that for spectrum and licence fee costs in 2018. Extrapolating to 2021, Kar estimates that the industry will make around Rs 1,85,000 crore ($27.8 billion), and will have to pay around 31% of the revenue for spectrum and licence fees. He goes on to argue that at the existing debt levels, the telecom industry simply cannot participate in the upcoming spectrum auctions.

The debt levels that Kar alluded to were touched on by an August report from financial services company Credit Suisse. The report, which looked at a number of financially stressed companies in India, featured both Airtel and Idea Cellular. Airtel, till recently India’s largest telecom operator, had an earnings before interest and taxes (EBIT) of Rs 1,580.6 crore($237.6 million) in the June 2018 quarter but paid an interest of Rs 2,549.8 crore ($383.3 million) on its debt. Idea Cellular, which recently merged with Vodafone India to form Vodafone Idea, had a negative EBIT of Rs 1,433 crore ($215.4 million) and had interest payments of Rs 1,525.8 crore ($229.4). As for the larger picture? COAI claims that, as of March 2018, the total debt of all telecom operators is Rs 7,64,000 crore ($114.83 billion).