Band-aid solution: Telecom sector needs more sustainable measures

The Cabinet decision to extend the timeline for payment of spectrum acquired through previous auctions to 16 years from the current 10, as suggested by the inter-ministerial group (IMG), will reduce the stress in the telecom industry by improving the cash flow — perhaps by as much as Rs 550 billion. Along with a longer payment duration, the government has also approved a recommendation by the Telecom Regulatory Authority of India (Trai) to raise the overall spectrum holding of an operator to 35 per cent from 25 per cent, a step that will encourage consolidation. The 50 per cent spectrum cap in the same band has also been removed with this goal in mind. On the whole, these are welcome moves but the government has taken longer than it should have to offer relief to a sector which is in the midst of an estimated Rs 7 trillion debt. Moreover, these steps may not be enough to revive the telecom industry, given the scale of its distress. Several telecom companies have either already shut shop or are on the brink of collapse.

 
The IMG, set up last year to address the telecom crisis, stayed away from suggesting any big reform while recommending steps around spectrum payment and a cap on air waves. The Union Cabinet has only given its seal of approval on the IMG view, without introducing any reform for the telecom sector. In other words, the government decision is not going to help the sector much. As such, while it is true that telecom companies will now have more time to pay their dues for the air waves won at extremely steep prices in the past, yet this may serve only as short-term relief rather than being a turnaround measure. Easing of the spectrum cap will help consolidation for sure, but the industry is waiting for more. Lowering of licence fees and spectrum usage charges top the list of the telecom industry’s demands for improving the health of the sector comprehensively.

 
The telecom upheaval that had started following the 2G spectrum allocation controversy has continued. Even though everyone in the 2G case recently received a clean chit in the absence of clinching evidence, the sector has faced severe market disruption more recently. A new player with deep pockets offered freebies for several months before introducing rock-bottom tariffs, forcing others to play ball. In addition, there have been other regulatory recommendations in the last few months, hitting some of the major telecom businesses, both domestic and international.
 

The government needs to play a proactive role to turn around India’s telecom industry, which was counted as among the most lucrative markets in the world not too long ago. If the sector has to grow meaningfully, then the government, the regulator and the industry have to work together to bring back healthy competition. The next round of spectrum auction and its floor price should be designed keeping the sector’s pain in mind. Some of the previous rounds of spectrum auction triggered cash burn as telecom companies put in exorbitant bids mindlessly. A repeat of that anytime soon could be a recipe for disaster.