The media recently reported that the Department of Telecommunications (DoT) views call drop as a top priority. But surely, from a national policy perspective, other matters ought to be engaging its attention. Given the legislative logjam, are other executive measures that will have an enduring impact on the sector possible? And can these be implemented in two or three years?
Communications and connectivity in the Northeast (NE) are poor. If nothing else, compelling security needs should have prompted urgent action. Unfortunately, proposals for improving communication in the NE have been doing the rounds for nearly a decade - of course, with no action. The Telecom Regulatory Authority of India (Trai) was asked to draw up an investment plan to improve communication in the NE. This was sent to the DoT in September 2013. The government's internal processing of the proposal is complete (with all necessary approvals/clearances). This is a project that can be implemented in a span of two years.
Similarly, communication between the mainland and the island territories (Andaman & Nicobar and Lakshadweep) is severely constrained. Proposals to improve connectivity to the islands have also languished for seven years or more. Once again, the DoT outsourced the development of the investment plan to the regulator; this report was submitted in July 2014. This, too, has gone through the government's internal processing routine and is ready for implementation. This, too, can be executed in the space of 30 months.
Over 20 years, telecom connectivity has massively expanded. But 50,000 villages have been left behind, with no connectivity whatsoever. Since August 2014, the prime minister has repeatedly said that rural connectivity must be a major national priority. However, to the best of our knowledge, plans have not even been drawn up for these 50,000 villages. Why not make this a top priority? Remit the matter to the regulator to draw up an investment plan to connect these villages. Trai can complete the task in six months. Assume an internal processing time of six months (for top priority), and it should be possible to execute the programme in two years, most definitely before the end of 2018.
These projects need to be executed as missions, with assigned mission leaders. Most importantly, a monitoring system must be put into place, both in the DoT and within the missions. Then only will they get done in two to three years.
The telecom sector was opened to private investment because of the serious budget resource constraint. Twenty years later, the logical basis of that paradigm shift remains intact. India needs huge investments. The issues that ought to be engaging executive attention are the economic health of the industry and how it will mobilise investment.
Large capital expenses on spectrum (and infrastructure) have imposed two types of constraints. The direct impact on internal resource accrual. The huge amortisation charges pre-empt a large part of the EBITDA margin. This imposes serious limits on mobilising equity or foreign direct investment (FDI), constraining further investment. Moreover, the telecom companies' high leverage limits the amount they can raise through debt (and also equity and FDI).
The licence fee (LF), the spectrum usage charge (SUC) and taxes account for roughly 30 per cent of gross revenues. The base for the levy is called adjusted gross revenue (AGR), which has been the subject of tortuous litigation for the past six years. The National Telecom Policy 2012 stated that larger flows of revenues would materialise from spectrum auction proceeds. It, therefore, conveyed a clear message that LF and SUC would be rationalised. Nearly four years later, we are still where we were before. On AGR, the government asked the Trai for recommendations; those have been available with the DoT for a year now.
Decisions on all these need urgent attention. Recall that it was the National Democratic Alliance government in 1999 that decided to move to revenue share which, in turn, triggered a huge telecom expansion. It, therefore, makes sense that a majority Bharatiya Janata Party government in 2016 take the same progressive view and reduce the LF and SUC to flat rates of five per cent and one per cent respectively with immediate effect.
Industry consolidation has now begun. However, it is severely constrained by the 25/50 rule. The restriction that a telecom company cannot own more than 25 per cent of all spectrum in a licence area must be changed. We can happily live with 35 to 40 per cent.
No discussion on telecom development can be complete without a mention of spectrum. The government needs to quickly augment the availability of access, back-haul and unlicensed spectrum. Increased supply of spectrum will ease pressure on prices and, hence, the capital intensity of the industry. Second, the world over, segments of high frequency bands (above 2GHz) have been made free for use. Such unlicensed spectrum is hugely beneficial in reducing the load on commercial access spectrum.
Third, an urgent audit of all spectrum is required. An audit will reveal that allocated spectrum is inefficiently used and can be resumed by the DoT at little or no cost to the body currently squatting on it. Why shouldn't spectrum in the 400 MHz-500 MHz band, currently held by Prasar Bharati, be freed up over, say, the next two years?
We have focused on two issues: expanding coverage in the grossly under-served areas and the development and revival of the telecom industry. The prime minister has pinned many development hopes on this sector. Time to get cracking.
The author is ex-chairman, Telecom Regulatory Authority of India