Telecom's fresh start

New telecom policy is a step forward for the sector

The government’s announcement of its new telecom policy should be welcomed as a move forward after the missteps and uncertainty that have dogged the sector in the past months. Although it retains elements that appear to contradict other parts of the policy – as well as some recommendations of the sector regulator – it at least shows the government’s intent to clean up telecom. The government needs to look forward consistently, now that the Supreme Court has stepped in to cancel the 2G licences awarded in 2008 and to strike down the income tax claim against Vodafone. Reports that the government is considering seeking a review of that judgment are worrying; this will send out a terrible signal, especially when the Supreme Court has been so categorical in its pronouncement. A new law that taxes such transactions with retrospective effect will also be a bad idea, increasing uncertainty in the sector. It will, in fact, further discourage fresh investments and hamper India’s economic recovery.

The broad point of the new policy appears to be that the awarding of a licence should be delinked from the possession of spectrum, and this should be unqualifiedly welcomed. It is a crucial step towards treating spectrum as a marketable, tradable commodity (albeit one that is originally a commonly held resource) and as such should be welcomed for the gains in efficiency and transparency it will provide. There remain aspects, however, on which greater clarity is expected. Spectrum sharing is one such area. The reiteration of restrictions on 3G spectrum sharing is likely to raise questions, in that companies can justifiably argue that they bid for 3G spectrum on the assumption that it could be shared. The new restrictions on 2G spectrum sharing, too, are questionable. Companies can now share 2G spectrum only in the same service area with others that hold spectrum in that area. An operator with spectrum in Mumbai, Delhi and Kolkata cannot offer its service in, say, Chennai after sharing the spectrum held by some other operator in that region. This may adversely impact consumers in the implementation, and should be open to review. Indeed, it appears to be a step that favours the largest incumbents, who have spectrum in more circles.

The pro-incumbent nature of these rules, in which incumbents essentially appear to have easier access to spectrum, should cause a certain degree of concern. The government must monitor the state of competition in the market carefully, to ensure that it remains contestable and challengers are not frozen out. That said, the long-term trend of the market is clearly towards consolidation and rationalisation of tariffs. The new requirements for mergers, therefore, should be welcomed to the extent that they set a framework within which that inevitable process can take place transparently. Guidelines from the Telecom Regulatory Authority of India ironing out discrepancies will, however, be needed. Overall, given that the telecom sector has contributed vastly to India’s growth, it is important that the government has moved to reduce the uncertainty to which it had been exposed. A uniform licence fee and making spectrum tradable at market-linked rates are the norms to which the government should move, and this new policy, with some exceptions, is therefore a step in the right direction.