Smoke and Mirrors

The telecom sector's woes stem from the central government's faulty policymaking.

The telecom sector’s habit of lurching from one controversy to another stems from the faulty policymaking of the government

India’s telecom sector can be broadly classified into three phases: 1994 - 1999, 2000- 2010 and post-2011. Each period is marked by controversies or scams. The sector’s fortune revolves around spectrum. In the first phase, despite the absence of dominant players – given that the sector was still at a nascent stage – some telecom operators rigged the system by bribing the then telecom minister Sukh Ram.

The first major change was brought about in 1999 when the NDA government introduced a liberal New Telecom Policy, which allowed private operators to migrate from a fixed-licence-fee regime to a revenue- sharing model that made it financially viable for them.

Then, in 2003, the government moved away from auctions to a Unified Access Service Licence ( UASL) system that granted licences on first- come first- served basis. Initially, the spectrum came bundled with UASL licence. Then it was assigned on the basis of the number of subscribers. This move benefitted telcos – such as Bharti Airtel and Vodafone – with a higher subscriber base. In fact, the ongoing tussle between lobby body Cellular Operators’ Association of India ( COAI) and Reliance Jio is reminiscent of the 2006 fight between CDMA operators and the COAI.

In 2008, the government opened the sector for new players. Some 122 new 2G spectrum and licences were granted to nine telecom companies at the 2001 price, which led to notional loss of some `1.76 lakh crore to the exchequer, better known as the 2G scam. Many of these nine companies were fronting for existing large telecom players, a report by Serious Fraud Investigation Office noted.

Cut to 2016, the sector is going to witness the biggest telecom auction ever. In 2010, the government had decided to go back to the auction method after the 2G scam rocked the country. In this fifth consecutive year of auction, the government aims to raise ` 5.66 lakh crore. But by selling spectrum in small chunks every year, the government has seriously affected the ability of telcos to utilise spectrum in the most efficient manner. As a result, telecom operators constantly crib about low availability of spectrum.

To some extent, this shows poor planning and inability of the telecom department to foresee future trends. In most mature markets, spectrum is sold after a gap of 3-5 years, and in large chunks. In the US, for instance, the Federal Communications Commission ( FCC) auctioned spectrum in the 700 MHz band in 2008, 2011 and 2016.

The current brouhaha on issues such as interconnection usage charges ( IUC) and spectrum usage charges ( SUC) has also arisen from constant policy changes and flip-flops. For instance, since TRAI introduced IUC in 2003, the charges were amended several times. The recent consultation paper by the regulator talks about a bill-and-keep model, which will bring charges down to zero, and benefit companies like Reliance Jio. What India needs is a longterm strategy built around public and national interests with little room for policy U- turns or arbitrary decisions. ~