The twists and turns in India’s telecom policy

The Vodafone crisis is a reflection of the arbitrariness in policymaking. Its collapse will lead to a duopoly, an undesirable outcome
The evolution (or should one say mutation) of India’s telecom policy through the years has lessons for everybody — policymakers, bankers, analysts, the companies themselves, and even the courts (Shutterstock) PREMIUM
The evolution (or should one say mutation) of India’s telecom policy through the years has lessons for everybody — policymakers, bankers, analysts, the companies themselves, and even the courts (Shutterstock)
Updated on Aug 04, 2021 07:07 PM IST
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ByR Sukumar

India’s telecom story has seen more twists and turns than a Dan Brown page-turner. The reason I pick Brown is deliberate; there is this secretive, all-powerful society or entity orchestrating events, and generally calling the shots in all his books. That’s not very different from the narrative most industry executives and analysts subscribe to when it comes to telecom in India.

The twists and turns themselves have been interesting — the move to a new telecom policy (revenue-sharing as opposed to licence fee in the late 1990s); allowing fixed line licence holders to offer mobile services, albeit on a technology platform different from that used by mobile services licence holders; making mobile services technology platform neutral, thereby removing the distinction between the two sets of licence holders; allowing more mobile service companies than envisaged in the new telecom policy; a court ruling scrapping many licences thus given; allowing broadband services licence holders to offer mobile telephony services; and, the court ruling that provided the latest twist, the upholding of the government’s definition of revenue.

That’s a lot — but in defence of governments (there have been three different regimes in this period) and the courts, through all this, India’s teledensity has increased, from single digits at the turn of the century to a little over 87% this year. The price of telecom services and broadband in the country are also very low by global standards (according to a March report by Cable, a United Kingdom-based research firm, it was $0.68 per GB compared to the global average of $4.21). It’s also made the process of spectrum allocation — one of the corruption scandals that roiled the United Progressive Alliance government in its second term between 2009 and 2014 — transparent. The auction model has, however, as anticipated by some analysts, ended up being a zero-sum game, maximising revenue for the State but loading telecom companies with debt (laying the ground for a government bailout in the future). This was first seen during 3G auctions in Europe at the turn of the century, and nothing has really changed since.

And beneficial as the successive changes in policy may have been to the economy — there is a direct correlation between teledensity and Gross Domestic Product (GDP) — and users, they have been as detrimental to most companies in the business. Different estimates put the debt of the Indian telecom sector at between 4.5 lakh crore and 5 lakh crore.

This is the context against which Kumar Mangalam Birla’s letter — Birla stepped down as Vodafone India (VI) non executive director and non executive chairman on Wednesday — to the Cabinet secretary, offering to transfer his Aditya Birla Group’s entire 27% stake to the government, needs to be seen. He went on to add that if the government did not address three issues — its liability on account of how revenues are defined; a payment schedule for spectrum; and a floor for telecom tariffs — VI could “collapse”. Vodafone, according to Mint has a little over 1.8 lakh crore of debt on its books (March 31).

The immediate trigger for Birla’s offer is a long-standing dispute on the definition of revenue (a share of this revenue goes to the government according to the new telecom policy of 1999). The department of telecommunications believes that this includes all revenue earned by a telecom company (including dividend income, rent, and gains on one-off transactions); the companies themselves believe that it should only include revenue from telecom services. The matter was decided in favour of the telecom department by the Supreme Court (SC) in 2019, and it recently dismissed a petition by VI and Bharti Airtel that the telecom department’s calculations are off.

That left VI with a bill of 58,254 crore to be paid as its so-called allied adjusted gross revenue (or AGR) liability. It has paid 7,854 crore to date. In addition, as Mint reported this week, the company has 97,270 crore in deferred spectrum payment obligations, of which 8,292 crore is due next April.

Resolving both the immediate issue (VI’s impending collapse) and the larger one (an equitable telecom policy that is transparent and fair to both companies and users) will not be easy.

If it decides to take up Birla’s offer, the government, which has shown itself to be incapable of running telecom firms (Exhibit A: BSNL; Exhibit B: MTNL), will end up with another. If it decides not to, the country will end up with a duopoly in telecom — Bharti, which is also affected but still looks capable of paying the AGR-dues demand of 43,980 crore (it has paid 18,000 crore of this), and Reliance Jio, which has been left unscathed because it entered the sector via the broadband route — which isn’t desirable.

There is a third option — a package where the government provides a moratorium on spectrum payments, sets a floor price on telecom services to prevent predatory pricing, and works with the telecom companies on a fair definition of revenue. The last will also require the SC to sign off and require a more nuanced understanding of business in general and telecom in particular on its part.

The evolution (or should one say mutation) of India’s telecom policy through the years has lessons for everybody — policymakers, bankers, analysts, the companies themselves, and even the courts. Not for nothing do Deutsche Bank analysts, as cited in a recent Bloomberg column, refer to the country as “the most painful market we have come across to operate a telecom (company)”.

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Sunday, November 28, 2021