Telcos’ woes just wouldn’t end

Published: July 19, 2019 2:38:23 AM

In the interest of achieving its policy objectives pledged in the NDCP, the government can differ with the TRAI recommendations on the valuation of reserve price

telco, telecom, TRAI , telecom news, telecom industry, World Economic Forum, ICRIER, CRISIL, Raghuram RajanTRAI is oblivious to both the poor financial health of the sector and ensuring critical telecom infrastructure

By VS Ailawadi

At the World Economic Forum in January, former RBI Governor Raghuram Rajan observed that while India’s economic numbers are celebrated at different fora, critical infrastructure sectors are facing financial stress and liquidation. Power and telecom, in particular, are unquestionably highly stressed. In fact, ICRIER and CRISIL have released reports showing how debt-ridden telecom companies are—their EBITDA is not sufficient even to service their interest liabilities, with their gross revenues declining to Rs 57,827 crore in September 2018 (a drop of 12% year-on-year), as also government revenues declining by 11% and 16% in licence fees and spectrum usage charges, respectively.

Telcos are facing serious financial crisis. While much has been said about the merits and demerits of the policy approach on the allocation of spectrum and on administrative prices, the fact remains that there has been an exponential growth in the number of wireless subscribers—the subscriber base doubled from about 26 crore in 2008 to about 58 crore in 2010. In the next seven years, it doubled.
An ICRIER study showed that, during the same period, government revenues also increased—no doubt, through auctions, because the government realised about Rs 1.76 lakh crore between 2010 and 2016. But the industry got exposed to a debt burden of `5 lakh crore or more. Somewhere, the enthusiasm was found misplaced. Industry health being unstable, the high prices for the next round of auctions for 5G would show little appetite for the existing market players with the exception of one.

TRAI’s refusal to review its recommendations on spectrum reserve price for auctions in August 2018 defies a holistic approach. TRAI is not oblivious to the poor financial health of the sector—for which it is as much responsible as for its growth—when revenues are declining. On all accounts, it is undisputed that a high reserve price for 5G spectrum would have a debilitating effect, leaving little for the capex for laying out 5G services. Then why is it that TRAI has stuck to the base price recommended in August 2018? It is not mere unconscionable indifference to the poor health of the sector, because it sees its development from the prism of growth happening on account of one player, and is fascinated by the Darwin theory of ‘survival of the fittest’. It appears it is also unmindful in ensuring telecom infrastructure as critical to economic growth.

Even unbiased analyses of noted research bodies and press editorials—such as the FE editorial ‘Telcos need help, govt will decide on penalties first!’ (July 10, 2019, https://bit.ly/2LXPJUI)—have simply been brushed aside. The authority dismisses the review asked for by the Digital Communications Commission (formerly Telecom Commission) with ingenious explanation that “its methodology, assumptions and developments in the intervening period after the last auction in 2016 and August 2018 have been well considered.” In response to the DoT’s view that TRAI also shared concerns about the sector’s financial health, its disavowal is laconic—it was not its view but “expressed by a section of stakeholders” (para 8 of July 8, 2019, recommendations).

What, then, is the option for the government? In its own wisdom, and in the interest of achieving its policy objectives pledged in the National Digital Communications Policy, it can differ with the TRAI recommendations on the valuation of reserve price. The government would be justified in doing so because, firstly, TRAI’s approach is manifestly short of reasoned conclusions and, secondly, it has not shared the facts and grounds in public space in effectively elaborating its conclusions in its recent communication to the government.

The high-powered commission (DCC) would be competent to deliberate on the TRAI recommendations and arrive at a different reserve price, which would be reasonable and fair in order to revive interest and create effective participation in the forthcoming auctions. It will be wrong to say that the government is stuck with the TRAI base price or is facing dilemma, for the course it chooses will make or mar its policy objective of bringing digitisation to its 133 crore people.

The author is a former power sector regulator

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