The telecom sector is in deep financial distress now, similar to what we witnessed in the late 1990s and early 2000. There have been bankruptcy filings; some telcos have requested for delay in payment of spectrum fees due to the government; there are even rumours of shutting down state-owned telcos.

All these do not bode well for the Digital India campaign of the government. What has gone wrong with the telecom sector and how do we revive and perk up the sector?

The hype generated during the liberalisation of the telecom sector and the subsequent licensing and auction of spectrum in 1994-95 for mobile services left the telecom industry on the verge of bankruptcy. The government, as part of the National Telecom Policy (NTP) 1999, bailed out the struggling telcos by migrating them from fixed spectrum fee-based method to revenue sharing scheme.

In the mid-2000, thanks to change in licensing policy and move towards fixed fee-based method of licensing and spectrum allocation, hyper competition set in with as many as 11 operators licensed to provide mobile services in a service area, a phenomenon that was never heard of in any other part of the world.

This led to excessive fragmentation of spectrum leading to deterioration of quality of services and resultant industry inefficiencies. With the landmark verdict of the Supreme Court in 2012, licenses of many telcos were cancelled leading to uncertainty about the future of telecom in the country.

Today, the situation is a bit different. There is consolidation in the sector leading to 4-5 operators in each of the service area, similar to the global average. There is also spectrum consolidation with each operator holding reasonable quantities of spectrum.

However, the marked difference is the strategy for market penetration perpetrated by a new entrant, causing severe price based competition. The incumbents while crying foul on some of the regulatory decisions including decrease in Mobile Termination Charges, definition of predatory pricing and Significant Market Power assessments, continue to decrease prices especially of data services to match those of the new entrant, thus compounding their financial burden.

While there have been encouraging words from the government on reviving the sector, no serious actions have been forthcoming.

Infrastructure status

For the first time, the National Digital Communications Policy (NDCP) 2018 accorded telecom the status of “critical and essential infrastructure”. There have been many action items in the policy including “Fibre First Initiative”, establishment of National Digital Grid and so on.

However, what this means for telcos is far from clear. The telecom networks that support voice telephony and broadband data services are critical infrastructure for the country much like electricity, water, sewage and road networks. However unlike the other infrastructure sectors where government or state-owned enterprises provide services in a monopoly market environment, a major portion of the telecom infrastructure in India is built by private firms using their capital in a relatively competitive market.

However, this infrastructure needs to be robust for providing any of the communication services including the Over The Top services. Hence the policies, directives and support of the government for improving the telecom infrastructure are quite different from that of other utility infrastructure.

One step the government can do for enabling the private sector that has invested heavily in the sector is to reduce the burden of regulatory fees. For example, the license fee of eight per cent of the Adjusted Gross Revenue including five per cent as Universal Service Levy (USL) is one of the highest in the world. Though substantial amount from the Universal Service Fund is being utilised for the implementation of Bharat Net, the accumulated balance of about ₹45,000 crore necessitates a revisit of the USL.

TRAI in 2015 proposed reduction of the USL to three per cent, thus bringing down the license fee to six per cent. This reduction if enacted by the government will provide some relief to the ailing telcos.

Further, both the regulator and the government need to revisit the reserve prices for the forthcoming spectrum auction. Though auction of spectrum in the past years have garnered much revenue to the government, the winning bid prices have been several multiples of those witnessed in other countries.

In the past, some of the operators participated recklessly in these auctions leading to exaggerated prices — much above their true valuations. Since spectrum is the essential infrastructure for mobile broadband services including 5G, the government will do well in moving quickly in releasing large swaths of contiguous spectrum, both in high frequency and lower frequency bands for augmenting the infrastructure; set reasonable reserve prices for the market mechanisms to induce “truthful bidding”, and not leading to “winners’ curse” as witnessed in some of the previous auctions.

As far as the state-owned BSNL/MTNL are concerned, one immediate action the government should do is to merge both so that the combined entity can leverage its pan India presence much like the private incumbents.

PSU focus

The state firm is essential for improving broadband services across rural and remote areas of the country. The government would do well to initiate actions to better utilise the human resources, capital assets including land, and the nationwide infrastructure of the state-owned firms to beat the private sector, both in terms of quality and prices of services.

All the digital initiatives of the government including digital identification and authentication, e-Know Your Customer, digital finance depend heavily on the telecom and broadband infrastructure.

For their part, the telcos should realise the importance of their infrastructure for the nation’s economy and make it robust and resilient. If OTPs do not arrive within time, it can have serious consequences including denial of benefits and services to citizens.

After having slipped very badly in building and maintaining good civic infrastructure in the country including roads, water, and electricity, let us not slip in telecom and broadband infra as well. The telecom industry in India is bestowed with opposing camps: GSM vs. CDMA; incumbents vs. new entrant. Let the telcos collaborate and compete for providing better citizen-centric services.

The writer is Professor, IIIT Bangalore

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