Dr Mahesh Uppal, Director, ComFirst India

Dr Mahesh Uppal, Director, ComFirst India

Thanks to the last-minute intervention of the government, India’s telecom sector has emerged from the brink of a severe setback. However, further reform is required to ensure that India’s users can acc­ess the full range of services and tech­no­lo­gies, especially in rural and remote areas.

The Supreme Court judgment on the computation of government levies exacerbated the pains of a telecom sector already weighed down by debt. Telecom companies were ordered to pay disputed licensing dues, interest and penalty for delays. This caused the deficit to balloon by a humongous Rs 1.3 trillion, nearly killing Vodafone Idea (Vi).

The government’s reform package in September 2021 provided much-needed re­lief. It gave companies a moratorium of four years on their dues and offered to convert interest payable into government equity. Vi took both offers. The government’s assistance with cash-flows – though not to­tal liabilities, as it has clarified – will en­sure that Vi and the competition in India’s telecom market survive.

Continuing competition in the telecom market will reassure telecom users. Players, keen to pursue market share, have innovated in every aspect of their business. In barely five years, the take-up of data services has increased exponentially. While many un­met objectives remain, especially access to rural and remote populations, competition has manifestly worked in favour of users and companies alike.

However, the government’s solution to the sector’s financial woes is far from perfect. It holds the largest equity in two competing companies in every service area. The public sector players, Bharat Sanchar Ni­gam Limited (BSNL) and Mahanagar Tele­pho­ne Nigam Limited (MTNL), will di­re­ctly compete with Vi, a private company with substantial government equity. In a market with just four competing players, such a role will inevitably compromise the government’s position, both as promoter and policymaker. The new scenario will se­verely test the government’s floundering commitment to its companies and fair competition in the telecom market. The Tele­com Regulatory Authority of India (TRAI) will soon have a difficult question to answer when it implements the current caps on spectrum holdings: Are Vi and the state-run companies independent competitors or related entities?

There is an arguably more significant challenge facing the sector. Roughly 40 per cent of the population, especially residents of rural and remote areas, still lack data connectivity. Consequently, nearly 500 million people lose out on e-governance, e-co­mmerce, online education, e-health and mu­ch more. Commercial telecommunication players have little incentive to deploy expensive network infrastructure in remote or sparsely populated areas. The delays and costs involved in obtaining right of way (RoW) to deploy the infrastructure exacerbate the already weak business case.

Can the government and TRAI de­vise a response to address these residual ch­a­llenges? Can they attract innovation and in­vestment to connect the unconnected? They will need to do so without squandering the many gains of telecom markets or distorting them through ill-conceived subsidies. A sensible response might be to liberalise the markets further and incentivise innovation and investment. It would be in line with global best practices.

India’s telecom licensing regime suffers from extensive compliance. Companies pay substantial fees upfront, and later, a share of service revenues. Permission to provide licensed services is specific to an area, such as a circle or a city. While acquisition and sharing of spectrum are more straightforward than before, pooling spectrum from multiple players is still a challenge, such as for virtual networks operators (VNOs). The­re are considerable barriers to the re­sale of services.

Existing licensing rules, especially the obligation to share revenues with the government, discourage new technologies and the development of new or niche markets. Unsurprisingly, VNOs have failed to take off. Despite the policy push and the government’s ambitious Prime Minister’s Wi-Fi Access Network Interface (PM-WANI) pro­­g­­ramme, we have too few Wi-Fi hot­spots. We do not exploit the full potential of sate­llite communication, despite the glo­ba­lly recognised success of the space industry. Recall that satellite communication needs no RoWs, except for a few ground stations.

We need a more conducive regulatory en­vironment to enable players, especially smaller ones, to choose technologies, service areas and business models. There can be no little quarrel with rules to protect consumer interest, network integrity and, of course, national security. Auctioning spe­c­trum for a player’s exclusive use is sound eco­­nomics when demand exceeds supply. How­ever, there is little justification for levies such as licence fees, spectrum usage charges or the various types of guarantees needed.

Removing levies will also ease the government’s core predicament. It risks losing revenues and inviting litigation if new services or players escape costs while other com­panies pay heavy levies. Abolishing the levies altogether will bring all players at par and enable innovation and investment for the people and regions that need them. The lost revenues can be recovered through broader taxation.