Government should protect mobile consumers

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SummaryThe response to the much-hyped 2G auction due to the cancellation of 122 licences has been muted, resulting in much lower revenue for the government.

A cup of coffee or tea (depending on which part of India we live in) and a one-minute mobile phone call used to cost the same during the late 1990s. Remember the days when incoming calls were charged? All that has changed. And now, thanks to the paisa-fication effect, even inflation has no impact on tariff. India’s call rates are perhaps the lowest in the world and it is not surprising to see India ranked among the highest in minutes of use (MOU) compared to other global markets.

Along with attractive tariff rates, availability of phones and the ease of obtaining a phone connection have helped India witness unprecedented growth in the telecommunications market, leading to a tele-density of over 77%. This transformation in communication must be lauded. Now that the government is trying to maximise revenue through auctions, should we get ready for increased call tariff going forward?

It appears as if the government is obsessed with the R1.76 lakh crore loss (as noted by the CAG) and that the regulators are trying their best to reduce this loss through exorbitant spectrum pricing. There are arguments substantiating such high prices. But, can this be justified considering communication is an essential service and should serve the larger interest of the society?

Indian telcos are required to pay one-time spectrum charge, and this price is realised now through auctioning (earlier through administrative pricing) and an annual licence fee. Overall, regulatory levies in India are far higher compared to other parts of the world. While the Indian telcos end up paying 17-20% of the gross revenue they earn as tax, their Chinese counterparts pay about 3-5%.

Although the 3G auction held in 2010 resulted in the government landing a huge booty, the operators are still struggling as 3G service is yet to pick up momentum. All the mobile operators have stretched balance sheets, with debts running into thousands of crore of rupees. Reports indicate that the operators will continue to struggle as higher debts will significantly reduce the operators’ credit-worthiness, thereby bringing down their ability to raise money for future auctions. A report states that almost all the Indian mobile operators are loss-making. It is quite unclear if 3G uptake would turn them profitable or if the operators need to wait for efficiency due to mergers or acquisitions.

The response to the much-hyped 2G auction due to the cancellation of 122 licences has been muted, resulting in

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