[oped of the day] One Step Forward, two steps back for telecom sector

Context

Policy uncertainty is not good for investment. Despite that caution, the Indian telecom sector has been the beneficiary of vast amounts of investments from both domestic and foreign sources. 

Telecom sector

• • Investment – The magnitude of foreign investment in the telecom sector since the 1995 liberalization stands at $40 billion.
  • Policy – The National Telecom Policy (NTP) of 1994 acknowledged for the first time the need to create a world-class telecommunications infrastructure, and the centrality of private investment to achieve. 

Regulator

• • Inviting private investment without an independent regulator was flawed thinking. 
  • The Department of Telecommunications (DoT) had also devised a regime that was skewed in its favour and was essentially anti-private sector. 
  • Litigation became the norm. Eventually, the Supreme Court pronounced that private investments cannot happen without a regulator. 
  • Excessive and severe discord between DoT and TRAI  led to litigation, which in turn prompted the government to dissolve TRAI and its adjudicatory powers were given to a special tribunal for telecom, TDSAT, which came into being in 2000.

Spectrum

• • Spectrum assignment has been another instance of policy uncertainty. Until 2001, the spectrum was assigned through auctions via a contrived administrative procedure linked to subscribers. 
  • This created perverse incentives to game the system during 2003-08. 
  • The more subscribers you could show on your network, the more spectrum you were awarded. 
  • Certain operators inflated subscribers to gain spectrum. Others lobbied to jump the queue when the first-come, first-served criterion was selected as the assignment method. 
  • The Supreme Court came down on the impropriety in assigning spectrum and cancelled 122 telecom licences in 2012. 
  • It justified its judicial overreach in the larger public interest and pronounced that assigning spectrum to be done through an auction. 
  • Auctions continue to be the norm today and have become a millstone around the sectors neck.

Licence fees

• • The definition of sector revenue is linked to licence fees. 
  • Because telecom operators have to pay a percentage of adjusted gross revenue (AGR) to the government as licence fee, its accurate calculation is of vital importance. 
  • Its genesis dates back to 1999 when the market contributed to the exaggerated bids by new entrants.
  • Unable to honour their bids, operators were granted a migration package in which licence fee became a percentage of revenue. 
  • The deal has now become a bone of contention between DoT and operators. 
  • The department contends that for AGR calculations all revenues earned by operators must be included. Operators reason that AGR should only include revenue from telecom services. 
  • The Supreme court had sided with DoT creating a $19 billion burden on the sector. 

Way ahead

• • The endless litigation reflects an institutional malaise and deep trust deficit between the private and public sectors.
  • Unless we resolve this, telecom will not live up to its promise and will impair our digital future.