There is an ancient Chinese curse that goes, “May you live in interesting times!” This has certainly held true for the telecom industry in the past 20 years, as the sector has seen a sequence of amazing highs and incredible lows.

At the beginning of the phase, India’s telecom services sector was a monopolistic, unprofitable market of less than 20 million private subscribers, notable for its terrible quality of service and extremely high tariffs. It was then transformed into a market of 1 billion plus consumers, with the cheapest services in the world. There was room for a dozen aggressive competitors, which ensured that tariffs stayed low. Consumers got used to an improved (though still poor) quality of service. The industry added new revenue streams in the form of data-based services.

Now, the sector is back to less than a handful of service providers, and only a few steps away from becoming a duopoly, or even a monopoly. Service providers have shut down one by one as they incurred monstrous losses. Consumers are unhappy because the industry is hiking tariffs. Businesses that depend on smooth, fast data transfers are unhappy because the quality of service has declined. Service providers are unable to invest in capacity creation on existing networks. The government is also unhappy because the industry is not generating the revenues that could shore up government finances. There have been massive job losses, which have contributed to the wider economic slowdown.

This entire cycle of explosive boom and catastrophic bust has been driven by a series of policy decisions, some of which were good. For example, a switch to a revenue sharing regime in the early 2000s enabled many service providers to enter the sector. This, in turn, enabled thousands of other businesses, which benefited from the positive externalities, creating the preconditions for the boom. However, in hindsight, many of these policy decisions were poor, or arguably biased. The opaque and hasty grant of 2G licences in 2007 was one of the key decisions that threw the sector into disarray. Further, allowing the newcomer Jio to offer free services for six months in 2016-17 pushed service providers closer to bankruptcy. Unclear policy stances have also led to enormous amounts of litigation and unpredictability in the policy regime. The entire system of licensing, spectrum auctions and interpretations of taxation has been needlessly complex, leading to litigation. It has also been burdensome for service providers.

The industry is now at a critical crossroads. It could collapse into a duopoly or monopoly. Under the current policy, with complex spectrum rules and large outstanding AGR demands, we may soon see an effective duopoly. A duopoly cannot create the capacity to seamlessly absorb the 500 million-odd subscribers, who are currently using the services of Vodafone– Idea and BSNL-MTNL. This would be a political issue since hundreds of millions of subscribers could conceivably find themselves lacking even basic telecom connectivity. This would surely be an economic disaster, killing the entire concept of Digital India and making a mockery of the government’s promises to deliver online services. It would suddenly remove a large chunk of the customer base of every data-enabled business that is currently operational and cripple the start-up ecosystem. The whole “less-cash” or cashless financial ecosystem could shrink, taking down banking and fintech, and affecting hi-tech services based on data and location, such as ride-hailing, food delivery and e-commerce.

However, if policymakers make sensible decisions, this disastrous situation can be prevented. The industry is reeling from losses now due to poor policy decisions and a short-sighted philosophy that has attempted to squeeze the last drop of government revenue out of the sector. The revenues would have been greater if more service providers had remained operational. Spectrum base prices have been pitched at such high levels that nobody is prepared to bid for 5G. Surely, lower base prices would have found takers. Also, despite the Supreme Court upholding the government’s right to claim back taxes and interest on AGR, a pragmatic government should consider forgoing some of its claims, or offer substantially easier payment terms because a bankrupt industry simply cannot meet those demands.

What should policymakers do? One thing that must not be overlooked when making decisions is the large externalities of the telecom sector. Every business, from the corner grocery store to the entertainment content provider, investment bank and the IT services exporter, depends on the sector to buttress its business model. Even farmers rely on telecom to deliver fast price discovery for their produce. The government thrust on Digital India, smart cities, etc. also takes a vibrant, efficient telecom sector for granted. Even the filing of GST, for instance, assumes that the taxpayer will have adequate connectivity to file tax forms online.

When the sector is in good shape, those externalities are positive. Jobs are created, revenues are generated. However, the sector has not been in good shape for over three years. At least some of the wider economic slowdown of the past three years can be attributed to the trouble within the sector. Instead of positive externalities, we have seen negative externalities.

It is incumbent on policymakers to introspect about the state of the sector and to make pragmatic decisions that will enable a turnaround. It will not be easy to cut through all the complexities that have developed, but it has to be done if the industry is to survive and, hopefully, thrive.

By Devangshu Datta