Dialling revival: Telecom needs another great migration

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Published: November 19, 2019 3:20:52 AM

Easy payment terms at NPV will keep the full liability on the books, and is just a postponement of the evil. Moreover, a multi-sided remedy is required since any one-sided relief package would inevitably be challenged in court. Judging by precedents in the telecom sector itself, there is a strong likelihood of powerful PILs being filed.

Telecom sector, Telecom industry, Telecom news, Telecom companies, Telecom india, Telecom policy, It may be noted that even Dr Rajat Kathuria, chief executive, ICRIER, has opined publicly that spectrum auctions need to be reviewed and corrected.

Once more unto the breach, dear friends, once more: Or close the wall up with our English dead… — William Shakespeare
So it is with Indian telecom, which has reeled into yet another major crisis, probably the fourth or fifth in its 25-year history. Once again, there is an urgent need to close the serious ‘breach’ in telecom. In the past, near-disasters were always averted, and the sector emerged stronger than ever before, rising to scale new peaks of achievement. This time around, the scale of the the crisis is much larger, and the jury is still out on whether the sector will be able to repeat its past performance.

The sector was already economically unviable due to fragmented market, steep spectrum price, and heavy levies since long before the recent Supreme Court judgment—in fact, even before the entry of the new standalone 4G operator; therefore, some minor reduction of levies and/or a relaxation of the payment terms will, almost surely, not remedy the situation for even a medium-term. What is needed is a bold, comprehensive, and sustainable solution that fully addresses the basic causes of the deep-rooted malaise plaguing the sector.

Easy payment terms at NPV will keep the full liability on the books, and is just a postponement of the evil. Moreover, a multi-sided remedy is required since any one-sided relief package would inevitably be challenged in court. Judging by precedents in the telecom sector itself, there is a strong likelihood of powerful PILs being filed. A package which provides benefits to all major stake-holders—customers, the government, and the industry—is necessary to ensure it would be a sustainable solution. Industry is also disunited in the matter of relief. Hence, any solution needs to have the buy-in of both camps; otherwise, it could fall soon.

There are significant takeaways from the successful navigation of past crises. The crisis in 1997-1998, when the sector was on the verge of complete collapse, was solved not only through a brand new telecom policy but also, more importantly, a brilliant multi-sided migration package to move existing operators to the New Telecom Policy, 1999 (NTP99). The architects of this were Brajesh Mishra, principal secretary, PMO, N K Singh, finance secretary, and Sudheendra Kulkarni, director, Communications & Research, PMO. At the time, PM Atal Bihari Vajpayee was directly in charge of the communications ministry. This was an epoch-making settlement where operators gave up their contractual duopoly rights as well as all their licence-related litigations in court in exchange for migration to NTP99. The results of this “great migration” are for the entire world to see. Mobile tariffs crashed to less than `4 per minute from the extremely high rates earlier, and explosive growth of the sector—the envy of many nations—followed.

Even to resolve the next major sectoral crisis, following the disruptive entry, in 2001, of wireless in local loop – limited mobility, the solution, in early 2003, was through a multi-sided settlement, negotiated out-of-court, that sustained. It is important to note that, in both migrations, all stakeholders were willing participants. For a successful resolution of the current crisis, we once again need to have a holistic, multi-sided settlement, and not any quick-fix palliatives. Some thoughts on the features of such a package are shared below.

Scrapping of the current system of Iicence fee (LF) as a percentage of AGR is a key requirement. A high LF% is a major anachronism. It was appropriate when licence was packaged with spectrum. But, this principle should have been scrapped in 2012 itself, when licence and spectrum were separated, and the latter only allocated through e-auctions. It is universally accepted that, without spectrum, licence is a mere piece of paper, not worth anything practically. With spectrum bought in an open and transparent manner, licence fee could be an annual fixed fee that just covers the cost of administration and regulation. This cost is a small figure—currently equal to about 0.1% of the present AGR.

The abovementioned cost also includes the cost to the wireless planning and coordination department, and that of regulating spectrum. Hence, the current levy of spectrum usage charges as a percentage of AGR also needs to be scrapped.

Although e-auctions have been in vogue since 2010, their results haven’t satisfactory for multiple reasons—i) high unsold spectrum (over 40% of the offered spectrum has remained unsold); ii) sold spectrum going only at clearing prices, or very close to reserve prices (RP), i.e., the real market value remains undiscovered. This is due to incorrect auction rules, extremely high RPs, most valuations of spectrum being done on a pro-rata or ad hoc basis instead of from basics by the stipulated methods, errors in calculations, etc. As a result, the auction clearing prices of spectrum have been extraordinarily high, and out of line with international values. Spectrum being the life-blood of telecommunications, these shortcomings need to be addressed to ensure the sector’s health. This is probably the most important requirement.

It may be noted that even Dr Rajat Kathuria, chief executive, ICRIER, has opined publicly that spectrum auctions need to be reviewed and corrected.

The government is apparently already considering a 20-year payment with NPV protected. This is a welcome step, and we do hope it gets finalised. However, we wish to reiterate that while this would be an essential condition of the migration package, it would not be adequate to cure the sector’s basic problems. These are minor palliatives that will not cure the intrinsic cancer.

Customers and the public must, above all others, secure a big win since it is they who would ultimately bear the stiff cost of a full-blooded resolution through taxes, etc.

Today, the customer is already enjoying one of the world’s lowest retail tariffs for both voice and data. However, if one estimates the total cost of service here, factoring in the level of quality of service and experience, we are probably paying more. Our 4G speeds are, for example, only about one-fourth, or one-fifth of the global level. Our customer grievance handling processes and practices leave much to be desired. The relief package should include some commitments for measurable improvements in this regard. The customer should also get commitments regarding continuation of affordable user tariffs.

Last, but not the least, there could be other specific benefits for the economy and the government. The latter could seek specific commitments regarding on-the-ground contributions to national initiatives like Digital India, Smart Cities, and Rural Broadband. Specific contributions to and commitments regarding key customer-beneficial targets of the government could also be considered.

Telecom is the backbone for many other industries. A robust and competitive telecom sector is essential for the national economy, and big players cannot be allowed to fail. Lasting win-win solutions are possible and, if adopted soon, the sector can surely prosper and rise to higher orbits of excellence.

Honorary fellow of IET(London) & ICT consultant
Views are personal

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