Telecom reforms not sweeping enough

Syllabus: General Studies Paper 3

Context:

Recently, the Cabinet approved several measures to extend a lifeline to the cash-strapped telecom sector. But they are not enough.

Background: 

There are nine structural reforms and five procedural reforms for the sector. It includes 

• A four-year moratorium on all spectrum and AGR dues
  • The redefinition of adjusted gross revenue (AGR), prospectively, not retrospectively.
  • AGR calculations would exclude all non-telecom revenue from now and penalties had been completely scrapped.
• Equity option for paying dues: 
  • The change in definition that will reduce the burden on telcos, applies only prospectively, so those past dues remain payable.
  • Interest on those dues will now be compounded annually instead of monthly and the Minister said interest would be charged at a ‘reasonable rate of MCLR plus 2%. 
  • MCLR refers to the lowest lending rate banks are permitted to offer — the marginal cost of funds-based lending rate.
  • Companies have the option of doing this through equity. And the government has retained the option of converting remaining dues at the end of the moratorium period too, to equity.
• A fixed calendar for spectrum auctions with an extended tenure of 30 years for future spectrum allocations, and a mechanism to surrender and share spectrum. 
  • The enhancement of the life of spectrum by 10 years, 
  • The removal of a financial constraint to spectrum sharing, 
• Foreign direct investment (FDI) in the sector has also been allowed up to 100% under the automatic route, from the existing limit of 49%. 

Significance of the telecom reforms:

• It should ensure that the sector does not become a duopoly of Airtel and Jio and encourage companies to invest in customer service and new technology. 
• The announcements would pave the way for large scale investments into the sector, including for 5G technology deployment, and generate more jobs.
• Digital India goal: The telecom sector is one of the prime movers of the economy and the measures announced by the government would enable the industry to achieve the goals of Digital India.
• The moratorium on AGR dues provides an annual cash flow breather of around ₹14,000 crore for the industry while the moratorium on spectrum dues gives another ₹32,000 crore of annual cash flow relief as a whole.
• According to Telecom Regulatory Authority of India’s, ‘Yearly Performance Indicators – Indian Telecom Sector, 2020’, the country’s wireless tele-density in 2020 was high at 84.90 per cent. It comprises urban and rural tele-densities of 134.34 and 58.75 per cent, respectively.

Concerns:

• The package, however, does have positive features such as 
  • exclusion of non-telecom revenues from the levy on adjusted gross revenue (AGR), 
  • lengthening of tenure of spectrum to 30 years from 20 in future auctions, and 
  • Abolition of spectrum usage charge (SUC) for spectrum acquired in future auctions.
• The four-year AGR moratorium will provide temporary cash flow relief to telecom companies (telcos). 
  • However, the telcos are required to pay an interest of MCLR plus 2 percent, which is currently 9 per cent, on their AGR dues during the moratorium, so that the government’s receipts are ‘NPV protected’. 
  • NPV, or net present value, is the current value of a future stream of payments discounted at the applicable interest rate.
  • When the interest rates on long term retail home loans range from 6.5 to 7 per cent, the 9 per cent interest for a four-year moratorium is excessive. 
  • Telecom levies in India are higher than in most developing Asian economies.
  • The government must roll back the interest on AGR.
• The government is already burdened with two loss-making telcos — BSNL and MTNL. Acquiring equity stakes in more struggling telcos is imprudent. 
• In India, telcos have tended to compete on the basis of price, a practice that intensified with the entry of Reliance Jio in 2015-16. 
  • The average revenue per user (ARPU) realised by Indian telcos in 2020 was 39-58 per cent lower than those by telecoms domiciled in countries in a comparable stage of development — Indonesia and the Philippines..
• High spectrum prices have resulted in Indian telcos accumulating excessive liabilities including debt and forking out a higher share of revenues as interest payments. 
• India’s high corporate tax rate is the second-highest among the BRICS and ASEAN countries.

Way forward:

• The government should consider reversing its decision to potentially convert AGR dues to equity at the end of the moratorium period.
  • It should compensate telecoms for catering to rural customers and those belonging to economically weaker sections (EWS) as part of the second tranche of reforms.
  • This may demonstrate the government’s commitment to maintain the telecom industry’s competitive landscape and would not result in a cash outflow for the government.
• Utilizing USOF: The government compensating telcos for catering to rural and EWS customers should not be an issue due to the ₹58,809.56 crore ($7.81 billion) available in the Universal Service Obligation Fund (USOF).
  • The objective of USOF is to provide access to telecom services in a non-discriminatory manner to people in rural and remote areas at affordable and reasonable prices, thereby bridging the rural-urban digital divide. 
  • The USOF is financed through the collection of Universal Access Levy (UAL) at 5 per cent of AGR from telecoms.
  • The USOF, which was set up in FY2003, has collected ₹1,19,735.16crore up to August 31, 2021, of which it has disbursed close to 51 per cent or ₹60,925.59 crore on projects to build telecom infrastructure, provision of land lines and mobile phones and broad band in rural and remote areas. 
• Expand the scope of USOF to include provision of telecom services to EWS and compensate telcos for catering to rural and EWS subscribers. 
  • In the absence of competitive tariffs, a digital divide would have not only segregated urban and rural areas but also those above and below the poverty line. 
• Good governance practices: The DoT, as a good governance practice, must periodically report the quantum and nature of USOF investments and the resultant income earned.

The tariff regime still needs a reboot for players to sustain operations. A sustainable tariff regime is needed to ensure the industry gets a fair return. This will in turn allow it to continue investing in new technologies and innovation to bring world-class services to customers.

The Hindu Link:

https://www.thehindubusinessline.com/opinion/telecom-reforms-not-sweeping-enough/article37309140.ece

Question- Despite continuous interventions, the telecom sector has not been able to perform at its potential. Explain the issues being faced by the telecom sector in India.