Thomas K Thomas

How to untangle India’s telecom mess

Thomas K Thomas | Updated on November 15, 2019

Moot point There is no reason to continue collecting licence fee or spectrum usage charge as revenue share   -  istockphoto

Policymakers must let go of exorbitant fees. Operators, too, should change their mindset and focus on consumers’ needs

India’s telecom sector has been perennially under crisis for the last two decades. Regulatory blunders, flawed policymaking influenced by corporate lobby groups and unethical tactics by the telecom companies with a myopic view have ensured that 25 years after the first mobile call was made, the sector is in complete disarray.

The rot began from Day 1, when some companies bid exorbitant amounts in their greed to corner spectrum and later influenced the then government to convert the upfront fees to a revenue share under the New Telecom Policy, 1999.

Then in 2001 came the limited mobility controversy, wherein fixed-line telephony operators were allowed into the mobile sector through the back door. Just when a compromise was reached and the sector was beginning to settle, the 2G spectrum scam broke out. About 10 mobile operators had to shut down operations overnight after investing billions of dollars.

Few years later, the entry of Reliance Jio created a huge disruption as it unleashed 4G services, with free voice calls and data services priced at a massive discount. While the incumbent players were caught off-guard, questions have been raised about the regulatory actions, that seemed to be one-sided.

High levies

Amid this, there were multiple litigations being fought between operators and the government over things like what constitutes Adjusted Gross Revenue (AGR) for paying licence fees and whether Interconnect Usage Charges (IUC) should be zero or not.

The telecom sector has proven to be the graveyard for over 20 companies over the last two decades. Going by the current financial stress, the death count could be higher if immediate steps are not taken to rectify past mistakes.

On the policy side, there are four things that the government should do immediately. First, the long-standing demand of bringing down levies and taxes on telecom companies should be acted upon. Telecom companies pay nearly 30 per cent of their revenues to the government in addition to the upfront spectrum fees after each round of auction.

The concept of revenue share was introduced in 1999, when the spectrum was given on subscriber-based criteria. Since the upfront fee was waived by the then government, it made perfect sense to collect a share of the revenue as licence fee. But since 2010, the operators are buying spectrum through an auction mechanism. There is no reason to continue collecting licence fee or spectrum usage charge in the form of revenue share. Once the practice of collecting revenue share is stopped, then the entire dispute over what constitutes AGR also becomes redundant.

The Centre could even consider discontinuing revenue share with retrospective effect from 2010 onward, when spectrum was auctioned the first time. This can be adjusted against the payment of AGR dues following the recent Supreme Court order. Such a move will provide huge relief to all operators, particularly Vodafone Idea and Airtel.

In this spirit of doing away with regulatory levies from the past, the IUC should also be brought down to zero so that the industry can move forward with 4G and higher technologies. This will benefit Reliance Jio and will level the playing field between all operators.

Second, the reserve price for spectrum needs to be brought down to match the current market sentiments. The very idea of conducting an auction is to allow market forces to determine the price, so there is no merit in keeping the last-discovered price as the floor price in next round of spectrum. The deep division between the operators will ensure there is no cartelisation while bidding.

Third, revamp the entire regulatory and policymaking apparatus to make it agile and in tune with the needs of a digital nation.

Fourth, enable Bharat Sanchar Nigam Ltd to act as a strong counter to the private sector operators. BSNL must be unshackled from political and corporate interference so that it can take quick decisions on things like buying equipment.

Long-term plans

But beyond policy intervention, the operators also have to change their mindset if the sector has to be revived. A few years ago, a CEO of a large incumbent operator was heard dismissing 4G technology as something that will roll out only in the long term. The executive completely misread the advancement that was about to be unleashed by Reliance Jio and the company he led now finds itself in deep trouble.

The incumbent operators have often shown lack of long-term thought leadership both on the business aspects as well as when it comes to policy advocacy. For example, when they could, the incumbent operators did not push policymakers to shift to an auction-based mechanism for allocation of spectrum much earlier. Instead, the operators continued to enjoy cheap spectrum allocated through subscriber-based criteria even as they parked the dispute over AGR with the courts. The operators also did not make any provision for paying the disputed amount in the event they lost the legal battle.

These tactics, with a short-term view, have come to haunt them now. In fact, the incumbent operators’ lobby group, The Cellular Operators Association of India, should evolve into a Nasscom-like body that brings all stakeholders together to drive the national agenda in the right direction.

Consumer-centric approach

Above all, the operators and the policymakers should bring back consumers at the centre of all decisions. When players like SingTel and Vodafone entered India, consumers expected that soon India will get world-class services enjoyed by their counterparts in other parts of the world. However, the incumbent operators have spent most of their energies in fighting regulatory battles instead of creating a differentiated consumer strategy. Despite having market leadership, they continued to go after the low hanging fruit, milking that 10 paise out of the user, instead of focussing on innovation.

As a result, Indian telecom users still grapple with call drops, an inefficient complaint redressal mechanism and an average quality of services. There are over 600 million users in India that are yet to experience any form of Internet. The opportunity is therefore huge.

Instead of threatening to shut down operations, international brands like Vodafone should share their vision on how they can improve life for India’s telecom users if the government were to give financial relief. If telecom companies do not change tactics, any amount of fiscal sops will be a waste. There are only three players left in the telecom sector, and any more exits would lead to a duopoly or even a monopoly, which will be dangerous for a country that has just embarked on its digital journey.

Published on November 15, 2019

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