Use rear-view mirrors for further telecom improvements

George Santayan famously said that those who cannot remember the past are condemned to repeat it. Taking a leaf from his timeless wisdom, let’s look at the history of telecommunications entanglements in our courts that shook the sector’s potential, and look for lessons that governing institutions should avoid going forward. Take the 2G case, which was about spectrum allocation and the consequent loss to the exchequer, and the AGR case, which was about disagreements over its definition. Mind you, these cases stem from clumsy governance, which is equally responsible for the sad state of telecom affairs in the latter.

The government’s ‘first-come-first-served’ policy of allotting spectrum licenses in the 2G case was not only discriminatory, but it also favored a select few. Further, the Department of Telecommunications (DoT) has, from time to time, ignored the advice of the Ministry of Law, Prime Minister’s Office and Telecom Regulatory Authority of India and acted unilaterally. After estimating the estimated revenue loss by the Comptroller and Auditor General (CAG) ₹1.76 trillion, alleging irregularities in spectrum allocation, the matter reached the Supreme Court, which canceled all 122 telecom licenses.

Instead of punishing the officials for corruption and/or canceling the licenses of companies which got undue advantage, instead of finding a cure for the headache, the top court thought it appropriate to behead. Besides, the court also failed to pay adequate penalty to the wrongful firms. The effect of his decision was also not considered. This adversely affected international relations, investment, competition and consumers. In addition, subsequent 2G spectrum auctions were benchmarked to 3G rates, which forced telcos to borrow more money, adding to the burden on many. Ultimately, the 2G case was a turning point in the direction of the industry’s collapse, facilitated by an ill-considered decision.

Then came the October 2019 verdict of the Supreme Court on the AGR matter. In the entire gamut of the AGR controversy that began in 2003, the DoT holds significant accountability. DoT’s approach can be described as bureaucratic torture, marked by the belief that telecom operators were making windfall profits but withholding money from the government. This apparent lack of confidence in telcos resulted in a private chartered accountant (a private chartered accountant) to define AGR while expanding the scope of gross revenue to include non-telecom revenue, and insufficient consultation on AGR with key stakeholders. instead of CAG).

Importantly, the apex court failed to look at the bigger picture and decide that ancillary non-telecom revenue should not be a part of AGR. Instead of adjudicating a special and neutral body, the tribunal set up to resolve telecom disputes, headed by a retired Supreme Court judge and two experts, the top court ruled on the weak ground that the tribunal had no authority. The area was not. matter. One wonder why. Given that the government’s AGR orders were set aside by various courts between 2006 and 2015, levying penalty and interest on past AGR dues was clearly unjust. This reportedly increased the AGR liability by around 300%. Once again, the apex court failed to appreciate the economic fallout. Thankfully, the penalty and interest on levy has now been abolished, and the definition of AGR has been rationalized for all future calculations.

Nevertheless, the adverse consequences of 2G and AGR cases directly affected the market competitiveness and consumer welfare. As a result, competition declined in our telecom market, which was once overcrowded with 10-12 operators. It required consolidation to enable the permanent presence of the four telecom operators. Its possibilities have become brighter after recent amendments.

The latest reforms instill confidence that the government can act when pushed. In order to further encourage investment in the telecom industry, 100% FDI in telecom has also been permitted under the automatic route. However, these fixes are bandages for temporary relief only. The wound still needs treatment. We suggest a set of multi-pronged approaches that can strengthen our improvements:

One, privatize state-run operators to ensure that they function as major competitors.

Second, non-telecom revenue should not be included in the AGR with retrospective effect.

Three, approx. Make use of the unutilized Universal Supply Obligation Fund of ₹58,000 crore for soft loans in this sector, and reduced the levy of this fund from 5% to 3% in view of its poor utilization so far.

The path of recovery of the telecom sector is difficult, but the recent measures of the government have given hope. The country now awaits the second phase of telecom reforms that will seal the industry’s fortunes for the better. It should be done sooner rather than later.

Pradeep S. Mehta is the Secretary General of CUTS International, a global public policy think tank. CUTS’s Kapil Gupta also contributed to this article.