Telecom quick-fix: Relief on dues will help players survive

| Updated on November 25, 2019

But the telecom players too are guilty of circumventing regulation

The Centre’s decision to give a two-year moratorium to telecom operators on pending spectrum payment is a welcome move, given the financial stress being faced by them. Having a financially strong telecom industry, one that is capable of operating a world-class communication network, is key to securing India’s digital future. The moratorium in payments will help telecom companies avoid an immediate outflow of over ₹42,000 crore. Players such as Vodafone Idea will be able to tide over immediate liquidity crunch and stay operational. However, the moratorium alone is not a long-term solution. The operators still have to pay the spectrum dues at the end of the two-year period. The telecom operators collectively have debts of over ₹4 lakh crore. The recent Supreme Court ruling on Adjusted Gross Revenue has plunged the telecom sector further into a financial mess as incumbent operators stare at an additional payout of nearly ₹1.3 lakh crore of dues to the national exchequer. As a result, telecom operators reported combined losses of ₹79,000 crore in the second quarter.

The Centre must step-in immediately to find a solution otherwise the digital revolution unleashed across the country could come to a grinding halt. The demand of bringing down levies and taxes on telecom companies should be considered. 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. 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 the next round of spectrum auction.

The telecom industry should not try to circumvent regulation for selfish goals. Ever since the first licences were given out, operators have used lobbying powers to influence policy in their favour instead of advocating what’s good for the overall growth of the industry. For example, the operators did not make any provision for paying the disputed Adjusted Gross Revenue amount in the event they lost the legal battle, which is a violation of accounting standards. These tactics, with a short-term view, have come to haunt them now. Consumers have also been largely been neglected, having to deal with poor quality of service and inefficient complaints redress mechanisms. The current mess operators find themselves in is largely of their own making.

Published on November 24, 2019

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