Given the mess in the telecom sector, it is odd that the government should abruptly decide to post telecom secretary JS Deepak to Geneva, to head India’s WTO mission there. The sector, as Deepak pointed out in a letter to the telecom regulator last week, has a debt of over R4.6 lakh crore and has to pay the government auction instalments of R3.1 lakh crore over the next 11 years—all of this will get compromised by its declining revenues and profitability and, should there be a default, the impact on the banking sector will be large.
Deepak’s recent fight with Trai is well known and he was right in pointing out that the regulator could not allow RJio to flout the rules by offering promotional tariffs for more than 90 days—RJio’s six-month free services has, undoubtedly, played a role in it getting 100 million subscribers in just five months and in forcing the industry to dramatically lower tariffs.
This newspaper has argued that RJio is probably guilty of predatory pricing, but to blame all the industry’s woes on it is missing the point. That is why, Deepak’s letter to Trai, after the Telecom Commission meeting, also reminded the regulator that its job was also to look after “orderly growth of the telecom sector”. As telecom secretary, Deepak would find it hard to directly point out, but government policy is the main reason for the industry being crisis-ridden. Till 2010, when there were few auctions, telcos paid a share of their revenue as licence fee/spectrum charge to the government. After 2010, while the auctions fetched huge bids, the government didn’t scrap the licence/spectrum charges. As a result, the share of revenue going to the government by way of recurring licence/spectrum charges and auction-bids rose from 11% in FY07 to 32.4% in FY17—if service taxes are included, the number rose from 23.2% to 47.4%.
Which is why, while the industry’s revenues used to double and treble every year in the early 2000s, growth had fallen to a mere 6.8% in FY16, well before RJio came in—in FY17, industry revenues will contract marginally. So, licence/spectrum charges that doubled or tripled every year in the early 2000s, grew by a mere 7.8% in FY16—money from past and present auctions, though, more than doubled in FY16, making it clear how much the industry was being squeezed.
You might also want to see this:
So, when the outgoing telecom secretary was reminding Trai of its responsibility towards the industry, he was not just talking about RJio’s promotional tariffs or the fact that Trai needs to look at whether the pricing is predatory. He’s talking of the exorbitantly priced auctions and the licence fee regime that is long past its sell-by date. Who Deepak’s successor will be is not clear but since the Telecom Commission—India’s top telecom policy body—also has secretaries from NITI Aayog, DIPP, electronics and finance, hopefully the issues flagged by it will be resolved. If not, with or without RJio, the industry is going to see several companies shutting down with, in some cases, banks left holding the can.