A lifeline for the telecom sector

The government has done well to step in. Now, sustain the spirit of reforms. A thriving sector cannot be built on the backs of failed companies

One way of looking at the Union Cabinet’s decisions on the telecommunications sector announced on Wednesday is to say that these should have been taken long ago. The more pertinent way of looking at them would be that they have come just in time to offer relief to a beleaguered sector. The redefinition of adjusted gross revenue (AGR), prospectively, not retrospectively, the enhancement of the life of spectrum by 10 years, the removal of a financial constraint to spectrum sharing, and, more importantly, a four-year moratorium on all spectrum and AGR dues come as a lifeline to the sector. It should ensure that the sector does not become a duopoly and encourage companies to invest in customer service and new technology. Sure, companies have to pay an interest on the dues during the moratorium, but they have the option of doing this through equity (an option some of them will actively consider). And the government has retained the option of converting remaining dues at the end of the moratorium period too, to equity. Vodafone Idea is the biggest beneficiary of the new announcements; it owes the government around ₹50,000 crore . Bharti Airtel owes the government around ₹26,000 crore.

India’s telecom revolution sparked a change in the social, economic and political structures (Shutterstock)

The announcements (which also allow 100% foreign direct investment in the sector through the automatic route) come shortly after the government decided to scrap a controversial retrospective tax on transactions involving underlying Indian assets (something that affected Vodafone Group, one of the shareholders of Vodafone Idea). Together, these signal the return to an investor-friendly climate, or, at the least, a strong attempt to do so. The challenge for the government — it stopped short of announcing a floor price for telecom services, especially data, something that would have ensured there is no predatory pricing in the sector — is to carry forward the spirit of Wednesday’s announcements into its future telecom policy. India’s telecom policy has evolved in fits and starts, and usually disadvantaged incumbents while favouring new entrants.

India’s telecom revolution sparked a change in the social, economic and political structures. The spread of first mobile phones, and then smart phones, led to enhanced connectivity, empowered citizens, expanded access to information, generated economic activity, made India a more attractive destination for foreign investment, sparked off newer forms of political mobilisation, and democratised society. Wednesday’s announcements ensure that this story continues — for now. A thriving sector cannot be built on the backs of failed companies.