The telecommunications sector is in turmoil. The Supreme Court, a few days back ruled, Adjusted Gross Revenue, (AGR) for Telcos should include all revenue accrued to the carriers, including from non-core activities, a position that the government had taken. Hence the dividend income, rental income, interest income etc. will also be revenues for calculation of licence fee. Almost ₹1.3 lakh crore in dues, penalty and interest has to be paid within three months to DoT. This has a whopping 63% interest on the principal and penalty, since the case has been dragging from 2005. Along with an 8% licence fee, Telcos pay a 3% spectrum usage charge (SUC), computed on AGR which also is likely to go up. Vodafone Idea and Bharti Airtel, are the two Telcos affected most, with pending licence fee and SUC dues of ₹39,000 crore and over ₹41,000 crore, respectively. Tata Teleservices, which sold its loss-making consumer mobility business to Airtel, faces dues worth nearly ₹13,000 crore.
The tussle is one of technical interpretation. As per DoT, the charges must include all revenues earned by a telecom company including non-telecom related sources such as deposit interests and asset sales. Telcos insist AGR should comprise only the revenues generated from telecom services. Should such technical decisions not call for a greater debate before supply chain valuation in telecommunications is made, since they can affect downstream businesses? The sector, as it is, is reeling under a debt of over ₹7 lakh crore amid pressure on revenue and profitability due to price competition.
The biggest telecommunications problems for businesses today are the high telecom costs due to rapid technology changes, coverage outages, poor customer service, large number of invoice and billing disputes, implementing telecom solutions in new locations, international travel costs and services and managing telecom inventory. Using too many Carriers or remaining unsure of which telecom provider to use at all, selecting and changing telecom service plans, tracking, managing current and unused phone lines only make the job difficult.
The State run BSNL has been in trouble since the last 10 years due to poor government policies and delays in bringing new infrastructure. The inferior infrastructure, the company structure and emergence of JIO have all contributed in some way to the fall. It is a concern that in an era where 5G network is the norm, BSNL is testing its 4G network across the country.
These are uncertain times and the sector will continue to experience difficult change. It has seen the demise of Etisalat, Loop, Sistema, Stel, Telenor, Quadrant among others and is yet to recover from 2012 cancellation of 122 licences. How will the government collect money from Telcos which don’t exist anymore since the order also includes monies payable by the above besides RCOM which according to the affidavit, owes the government ₹16500 crore? In 2008, 122 new 2G Unified Access Service (UAS) licenses were granted to Telcos on a first-come, first-served basis at the 2001 price. CAG revealed that 2G licenses were issued to telecom operators at throwaway prices causing a loss of ₹1.76 lakh crore to the exchequer. An important part of the report said that license owners had in turn sold significant stakes to the Indian and foreign companies at high premium within a short period of time alleging that the premium earned by these new entrants to the telecom sector must actually be the estimated true value of the spectrum. Only a legal scrutiny backed by a very careful, adroit and technically intelligent investigation could have possibly differentiated a presumptuous loss from an actual loss.
The government was keen on 5G auctions happening in 2020. Even the budget estimates from telecom sector factored in some revenue from the auctions. With the pay-out sword hanging on the Telcos, can we realistically expect them to bid? Effective allocation of frequency would go a long way to realise programmes like Digital India, Smart City etc. During March 2015 auctions, the government earned a revenue of ₹82,000 crore from spectrum allocation. How will 5G pricing be determined? Auction pricing is not simple, since high end technology is at the back of a purely commercial proposition.
Auction as a process can be limited in efficiency and revenues by demand reduction and collusive bidding. When bidder competition is weak and one bidder holds an apparent advantage to win the auction for specific licenses, other bidders will often choose not to bid for higher prices, hence reducing the final revenue generated by the auction. Further, spectrum bands can even go unsold, forcing the base price to be brought down. Is it not prudent then, to not go below a well thought and well analysed base price? Would Delphi method, where for the same spectrum band, a base price is arrived at, by averaging final auction prices of various countries be a better option? Why should this not be a price at which the spectrum is now sold? Can we out think and out manoeuvre to avoid another contention in future?
A revival of the sector is called for, if telecom NPA’s are to be avoided in future. The options must include reducing the interest and penalty, besides long-term measures like lowering licence fees and spectrum usage charge, and fixing a floor for tariffs. The government must be wary since this could get the vigilance back in action. The sector is taxed at almost 30-32 percent with GST, AGR, licence fee, USO etc. A serious re-think is called for, if the escalation is not passed on to the end user.
A level playing field does not seem to exist in the sector. Risk-neutrality must guide. The government must see itself as an equal partner. Disruptive change is a necessary consequence of rapid technological innovation. The decades-long regulatory restrictions do not help any. It is possible that even more telecommunications providers will face financial turmoil, and some even bankruptcy. Many more jobs are likely to be lost in the name of cost cutting. The assets of these firms may continue to be deployed to provide telecommunications services. Consumers may or may not benefit from this turmoil, although much will depend on the policy choices that are made. Free trade in goods and services is a win-win situation. However, free flows of capital without restriction is not. We must be guided by this principle.