Indian telecom sector: Past and future

Communications Today, October 28, 2020

By Pradeep S. Mehta 

India, is the second-largest market in the world, a critical economic multiplier that cuts across all sections of the society, and amongst the most competitive and challenging businesses in the economy. For the businesses, it entails massive infrastructure comprising of towers across the wide landscape and brutal competition to acquire millions of subscribers. These factors are further aggravated by low average revenue per user, government’s indifference to policy certainty and judiciary’s poor approach in dealing with related matters in a hyper way.

The government facilitated the participation of private companies in the telecom sector with National Telecom Policy (NTP) 1994, and post NTP 1999, it grew exponentially. To give an overview, just ten years ago, India’s telecom space was crowded with about 11-12 players jockeying for dominance including the regional players. Ten years later only a handful are left. This diminution is a result of reasons such as market consolidation, mergers and bankruptcy, each catalyzed by different forces. One such force was the 2G case in the earlier part of the decade. The other one being the dispute about Adjusted Gross Revenue or as it is famously known as the AGR case, which dragged on for almost two decades.

The first blow
In the 2G case, the CAG estimated a presumptive revenue loss of ₹1.76 lakh crore to the exchequer and alleged wrongdoing in the allocation of 122 telecom licences in 2008 at prices that had been discovered in 2001. The case reached the Supreme Court and in February 2012, the apex court cancelled all the 122 licences that were issued by the Department of Telecommunications. DoT actualised a policy that was innately discriminatory and unilaterally extended the advantage to a select few. Similarly, the SC also did little to understand the economic ramifications of its judgment on the sector including the operators, vendors, investments, banks, consumers and the economy as a whole. Rather than cancelling the licences and upsetting the economy, the licensees could have been asked to pay a sizeable penalty to the exchequer, without which they could not operate. This would have compensated the government for the loss of revenue due to malevolent grant of licences, without upsetting the apple cart.

The final blow
The final blow to the telecom sector came from the AGR case. The telcos stressed under the high licence fee appealed to the government for relief. As a result, a revenue sharing formula was offered. However, contra to a transparent and consultative process to determining the definition of revenue, the DoT unilaterally expanded the definition of revenue to include non-telecom revenue as well. This marked the beginning of a contest in 2003. Nearly two decades went by, and in October 2019, the SC finally decided in favour of DoT. Outstanding dues from telcos were estimated at ₹1.47 lakh crore. After the SC realised that asking the telcos to pay the dues upfront may cause an operator to shut, they are allowed to pay their dues in a staggered manner over 10 years. Nevertheless, is it enough? The SC could have stepped up in remedying the disagreements over AGR that essentially came unilaterally from DoT, while also considering the economic ramifications of its own judgment.

The future
Interestingly, the government displayed a dichotomy in its approach in both the cases. In the 2G case, the government allegedly incurred a deliberate loss in dealing with the private sector while in the AGR case, it went for maximum extraction. While the fault can be directed towards different institutions, however, the larger blame falls on the SC in failing to create a balanced remedy to avoid or lest reduce such a downfall for the telecom sector. Going forward, the country and the telecom sector cannot afford any vacillating policies by the government or unbalanced judicial intervention if it were to advance and consolidate its telecommunication capabilities, more specifically, towards the forthcoming 5G.

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