Half measures

The Centre’s decision to relax the spectrum-holding cap and extend the payments tenure for auctioned airwaves gives only partial relief to the beleaguered telecom sector. Take the relaxation in repayment time for spectrum. Mobile operators pay between 25 per cent and 50 per cent of the amount they have bid to acquire spectrum upfront. The balance is paid in 10 equal instalments over a ten-year period after a moratorium of two years. The moratorium has now been increased by four years giving the operators a total of 16 years, instead of the 12 earlier. While this should help improve liquidity in the near term, it does not change the present value of debt to be repaid, which is the real problem facing most telecom operators. The sector is reeling under a debt burden of more than ₹7.7 lakh crore. At the same time, the huge demand for data is forcing operators to invest heavily in rolling out brand-new 4G networks, increasing the financial burden on telcos.

Likewise, the decision to relax the spectrum holding cap is also a good move but it is unfortunate that the policy makers did not go a step further and do away with the 50 per cent cap on sub-1GHz band. There is an urgent need for consolidation of spectrum holdings. Operators currently use a mix of 2300 MHz, 2100 MHZ and sub-1GHz bands to offer mobile broadband services. By retaining the cap on sub-1GHz bands, the Centre has ignored the efficiency brought in by large contiguous blocks of spectrum. However, the new rule allowing operators to own as much as 35 per cent of the total spectrum available in a circle will bring some relief to operators like Idea Cellular and Reliance Jio. Idea is in the process of merging operations with Vodafone’s India network; it would have had to surrender 45.4 MHz of excess spectrum under the previous guidelines. This spectrum, worth $800 million, can now be retained by Idea. Similarly, Reliance Jio would be able to go through with the acquisition of RCom’s spectrum assets.

But if the Centre wants to really help revive the telecom sector it has to do much more to reduce the financial burden on the industry. Operators pay nearly 33 per cent of their annual revenues in the form of levies and taxes to the Centre. Some of these levies are unnecessary as they are a continuation of the policy followed when spectrum was given on subscriber-linked criteria. For example, mobile operators are required to pay spectrum usage charge in addition to a licence fee. Once an operator pays an upfront price based on market mechanism, there is no justification for the exchequer to collect an annual usage fee. Perhaps, the Department of Telecom can review this aspect as it deliberates on the new telecom policy set to be unveiled this year.

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