Sasi Nair
India’s telecommunications sector is going through a challenging phase. Supreme Court of India, recently, ruled that the adjusted gross revenue for Telcos should include the revenue accrued to the carriers, including those from non-core activities. As a result, dividend income, rental income, interest income, and so on will be considered to be revenue for calculation of licence fee.
Telecom sector owes Rs. 1.3 lakh crores to the Department of Telecommunications, Government of India and it has to clear this within a period of three months. This includes a whopping 63% interest on the principal and the penalty, since the case has been going on from 2005. In addition to the 8% licence fee, Telcos also pay a 3% spectrum usage charge, computed on the adjusted gross revenue, which also is likely to go up.
Vodafone, Idea, and Bharti Airtel, are the ones which are affected the most with pending licence fees and spectrum usage charge dues of Rs. 39,000 crores and over Rs.41,000 crores, respectively. Tata Teleservices which sold its loss-making mobility business to Airtel faces dues worth Rs. 13,000 crores. The primary challenge for telecommunications business in contemporary times are the high telecom costs due to technology upgradation happening at rapid pace. Along with this the coverage outages, invoice and billing disputes, implementing telecom solutions in new locations, international travel costs and services, and managing telecom inventory, also pose severe challenges.
Many are unsure of which telecom service provider to be used, others select and change telecom service plans, and tracking and managing unused phone lines, pile on to the problems. State-run BSNL for example, has been in trouble since a decade due to bad policies and delay in implementing latest infrastructure. The emergence of Jio which now threatens to establish monopoly in the telecom market hasn’t helped its cause either. It is sad to see that at a time when India is moving towards 5G, BSNL is still testing 4G network.
We are witnessing uncertainty and the telecom sector will continue with this volatility. The sector is set to recover from the 2012 cancellation of 122 spectrum licenses. Question arises as to how government will recover money from Telcos which don’t exist anymore since the order includes money payable from companies such as Etisalat, Loop, Sistema, Stel, Telenor, Quadrant and others besides R Com which alone owes the government Rs.16,500 crores.
It is pertinent to note that in 2008, 122 new 2G unified access services were granted to Telcos on first- come, first-served basis at 2001 price. CAG revealed that 2G licenses issued to telecom operators at throwaway prices resulted in a loss of Rs.1.76 lakh crore to the exchequer. A highly efficient legal scrutiny in tandem with an adroit and technically sound investigation could possibly differentiate a presumptuous loss from an actual one.
With the Damocles sword hanging on the head of Telcos, can we expect them to bid? Effective allocation of frequency will be a prime factor in the success of government’s flagship programmes such as Digital India and Smart City. In the auction held in March 2015, the government earned a revenue of Rs.82,000 crores from spectrum allocation. How will the 5G pricing be determined? Auction pricing isn’t all that simple. High-end technology is behind such purely commercial proposition.
In an auction process when bidding is weak and one bidder holds an advantage over the others to win the auction for specific licenses, other bidders will shy away from bidding and this reduces the earning generated from the auction. Spectrum also runs the risk of going unsold, forcing base price to be brought down. It is prudent then to not go below a certain price.
Telecom sector needs to be revived so that we don’t see any non-performing assets in future. Reducing the interest and penalty besides long-term measures such as cutting down license fees and spectrum usage charge and fixing a floor for tariffs will pay rich dividends. Government on its part is unwilling to explore this as it could bring back vigilance into play. The sector faces a tax of around 30 – 32% with GST, license fee, etc.
Currently, it is not a level-playing field and risk-neutrality must come into force. Government should see itself as an equal partner. Technological innovations bring disruptions which we are seeing in the sector. Regulatory restrictions hardly help anyone and make the process complicated. It is very likely that telecommunication companies can face bankruptcy due to these restrictions and consumers will be hit hard. Free trade in services and goods is a win-win situation always but free flow of capital without some restriction isn’t good either. Moving forward we must be guided by some defined principles and tread the path cautiously.
