Ring in respite

Govt must address regulatory turmoil in telecom

The telecom sector is faced with its severest challenge. Revenues of networks are set to take a hit, thanks to free voice calls and the dirt cheap data offered by Reliance Jio. At the same time, networks need to make large investments in passive as well as active infrastructure. All this as the industry is groaning under a debt burden of ~4 lakh crore. Banks are increasingly getting nervous over their exposure to telecom companies. Some foreign players have started to look for an exit from the sector in view of the deteriorating prospects. Consolidation has started happening as smaller players find the going tough. Some have even written off investments. Clearly, telecom needs some respite.

At the moment, investors have no appetite for telecom companies. In the past, the Telecom Regulatory Authority of India (Trai) had made several suggestions that could restore the financial health of the sector. These revolve around the various levies that the government collects from the networks. The first is to make the spectrum user charge uniform at three per cent (of adjusted gross revenue) and then gradually reduce it to one per cent. At the moment, the industry pays between two per cent and six per cent. The second is to lower the licence fee from eight per cent to six per cent. And the third is to cut the contribution to the Universal Service Obligation Fund from five per cent to one per cent. The fund is known to have collected over ~35,000 crore so far, which the government wants to use for Bharat Net, the ambitious plan to link all village panchayats through fibre optic. Trai has also suggested that networks be allowed to pay for spectrum over 20 years instead of the current 10 years. Given that spectrum is in great demand in India, the largest market (by the number of subscribers) in the world after China, which makes the airwaves very costly, this will ease the pressure on the cash flows of the networks.

Of course, there will be financial repercussions if the government agrees to these suggestions. But, in the long run, these will ensure that the telecom sector stays robust. The government’s push for digitisation depends critically on a viable telecom infrastructure. As the usage of data picks up, the networks will need to spend more on spectrum and equipment, but if they run out of resources to do so, there will be pandemonium all over. At the moment, there seems to be a turf war going on between the government and Trai. The Telecom Commission, which is the highest decision-making body in the Department of Telecom (DoT), has said that Trai’s inability to stop Reliance Jio from offering back-to-back promotional schemes for six months, against the rulebook which limits it to 90 days, has caused the current turmoil in the industry. In recent reports, unnamed Trai officials have countered the claim and said the current pain is because the DoT has ignored the suggestions sent to it. It is at times like this that the political leadership has to step in and ensure that differences are buried and the right decision is taken.