By upholding the view that all revenue accruing to telecom companies be used as a base for determining the portion they need to share with the government as licence fee, the Supreme Court last week appears to have delivered a crushing blow to an industry teetering under a mountain of debt piled up to purchase spectrum at exorbitant prices and roll out some of the cheapest cellular services to be found anywhere in the world. The additional liability of ₹1.3 trillion on account of the revised licence fee, accumulated penalties and spectrum usage charges, all included, could fundamentally alter the scope of competition among Indian cellular service providers that have accumulated, by some accounts, ₹7 trillion in debt, principally to pay for radio frequencies won in auctions. The government, on its part, is mindful of earlier judicial interventions in an allocation policy that once ran the risk of underpricing this scarce natural resource. Various approaches have been tried and the settled view is that the most transparent way to allot spectrum is through a bidding process. Telecom policy, however, cannot afford to be oblivious to the role competitive intensity plays in the development of a sector that is vital to India’s transition to a digital economy. An insistence that even the returns earned by a telecom firm on its investments need to be shared with the Centre, unfortunately, hobbles almost every player’s ability to compete.
India started out by clubbing cellular licences with spectrum for a flat fee. When this approach showed limitations, policymakers switched to a charge per subscriber, which proved way too high, and eventually, to a revenue-sharing model that allowed cheap services to fan out across India. This arrangement grew contentious as spectrum pricing increasingly dissociated itself from licence obligations and it became clearer to regulators that onerous charges for permission to provide telecom services were counter-productive. The current policy iteration has come a long way in unbundling radio frequencies and licences, and the way forward appears to be to keep the latter purely as a regulatory measure. As telecom services tend towards universal availability, the concept of a licence fee becomes anachronistic and penalties for delivery failure acquire greater salience. The apex court’s ruling could trigger a response that hastens the process of splitting policy into a pricing mechanism for spectrum and an unpriced permission to operate. That would be in line with telecom regulation in several countries.
India has deepened its telecom penetration vastly since the early 1990s to become the world’s second-biggest market by subscribers. The learning curve has been steep, both because of the disruptive nature of technologies in this industry, as well as the strong regulatory reflex of Indian policymakers. Complications arise because the entire market is not at the cutting edge of technology: Every second call in the country today is made from a basic handset on cellular networks that are two or three generations older than the latest system available. As our policy challenges shift from enabling digital access to increasing consumption, we need to ensure that the market witnesses sufficient rivalry. Perhaps the government could waive the interest and penalty part of the arrears, refine its policy mix to lower other costs, and aid that cause. In this sector, more than anywhere else, a generous policy stance would serve us well.