Digging Deeper: Does New Telecom Policy Justify Various Levies Imposed on Service Providers?

In this podcast, we dive deep into the government’s plans to rationalise various levies being imposed on the service providers of the telecom industry.

In a news cycle overwrought with sensational headlines, the less interesting bytes do not enjoy as much bandwidth, but then that is why we are here. To give you a well-rounded perspective of the important developments that can in some way interest or impact consumers of services and products.

In this podcast, we dive deep into the government’s plans to rationalise various levies being imposed on the service providers of the telecom industry.

As was reported by various news outlets, the Cabinet recently approved the new telecom policy or the National Digital Communications Policy (NDCP) 2018. This according to DNA, is significant in the view of the country moving towards the next evolution in technologies. And yes, the focus happens to be on ”broadband for all.”

News agencies cited Telecom minister Manoj Sinha, “Emerging technologies like 5G, artificial intelligence, machine-to-machine communications and Internet of Things (IoT) called for a new consumer- and application-centric policy. The government aims to improve the reach of telecom services and applications riding on the network.”

So what exactly is the new National Digital Communications Policy-2018?

News sources inform that the new telecom policy has been formulated, in place of the existing National Telecom Policy-2012 to facilitate India’s effective participation in the global digital economy.

The policy has listed out targets for the next five years and modalities will be decided within a year.

First things first. Telecom Commission, to start with, has been renamed as “Digital Communications Commission”.

An Indian Express report outlines the key features of the policy:

  • The policy hopes to provide universal broadband connectivity at 50 Mbps to every citizen.
  • Provide universal broadband connectivity at 50Mbps and 1 Gbps connectivity to all Gram Panchayats of India by 2020; 10 Gbps by 2022.
  • Ensure connectivity to all uncovered areas.
  • Attract investments of $100 billion in the Digital Communications Sector.
  • Train one million manpower for building New Age Skill.
  • Expand IoT ecosystem to 5 billion connected devices.

What is loT? Express elucidates, “The IoT is the network of physical devices, vehicles, home appliances, and other items embedded with electronics, software, sensors, actuators, and connectivity. This enables these things to connect, collect and exchange data, creating opportunities for more direct integration of the physical world into computer-based systems. IoT results in efficiency improvements, economic benefits, and reduced human exertions.”

Another goal is to establish a comprehensive data protection regime for digital communications that safeguard the privacy, autonomy and choice of individuals.

Express adds, “In this way, it will enforce accountability through appropriate institutional mechanisms to assure citizens of safe and secure digital communications infrastructure and services.”

The policy also hopes to facilitate India’s effective participation in the global digital economy.

Among the chief goals of the policy, DNA adds is to create four million additional jobs in the digital communications and to ensure digital sovereignty.

The revamped policy also hopes to improve India’s ranking, which is at 134 currently, in the Information and Communication Technology (ICT) Development Index of International Telecommunication Union (ITU). The aim is to bring India in the league of the top 50 nations in this index within the next five years.

At the core of the policy is the telecom department’s plans to reform the licensing and regulatory regime to spur investments and innovation.

This is apart from as DNA puts it, “Promoting ease of doing business, a review of levies and fees, including license fee, spectrum usage charges, and the definition of adjusted gross revenue (AGR) and rationalisation of universal service levy. There is also a plan to rationalise license fees on fixed line revenues to incentivise digital communications.”

The report quotes Harsh Walia, associate partner, Khaitan & Co, according to whom,  the framework seems to suggest, “that Department of Telecommunications (DoT) is looking to revamp its image of a revenue-monger to a business-facilitator as charges, taxes and levies may be rationalised. In particular, spectrum usage charges may now only reflect administrative costs. This will be a breath of fresh air for the industry, whenever implemented.”

There is another perspective by Rajan S Mathews, director general, Cellular Operators Association of India (COAI), who says in the report, that the most important and urgent requirement is to restore the financial health of the sector for which the policy document envisages the reduction in levies and ease of doing business.

This according to him will help the industry in achieving the goals and fulfilling the objectives outlined in the policy.

The keynotes of the policy

The DNA report says the policy aims to recognise telecommunication services and infrastructure as an essential public utility.

“This will not only aid proliferation of telecom services but also facilitate low-cost financing. The industry today is facing one of its toughest phases, and low-cost financing is the need of the hour, for most service providers, who are languishing in debt and unprecedented losses,” Harsh Walia told the daily.

The significant point is that the policy reforms come in the context of a long-standing demand of the telecom industry for reduction/rationalisation of levies because the operators have been adversely affected by the domination of the key player Reliance Jio. The competitiveness in the sector post Jio’s entry has affected mobile tariffs, profits and margins says DNA, the industry has been sitting on a cumulative debt of around Rs 5.6 lakh crore.

In a nutshell, NDCP aims to increase high-speed broadband penetration, with the use of modern technologies like 5G and optical fibres at affordable rates.

A Moneycontrol report says the provisions to adopt “Optimal Pricing of Spectrum” may ensure sustainable and affordable access to digital communications since high spectrum price and related charges have been the main concern of telecom services segment.

A reality check

The Hindu Business Line however analyses the flip side of the new digital communications policy and says that it fails to address the sector’s core issues

The report says that the National Digital Communications Policy 2018 approved by the Union Cabinet does not have any fresh ideas in terms of addressing the issues being faced by the telecom sector.

“While restating the Centre’s intent to address the problems, it neither spells out how it plans to achieve the stated objectives nor gives a specific timeframe to implement the various proposals. Broadly, there are four major issues plaguing the telecom sector that need immediate attention. First, the industry is going through a financial crisis as a result of which as many as five operators have shut shop. Overall debt burden of the remaining players has burgeoned to alarming levels due to expensive spectrum auctions and huge reduction in cash flows,” reported The Hindu Business Line.

“Second, telecom consumers are no better today than they were two decades ago when it comes to quality of services. Call drops, unwanted telemarketing calls, patchy data networks and unfair practices to get users pay more are rampant. To make matters worse, consumers do not have access to a reliable and neutral complaint redressal mechanism.”

“Third, public sector companies in this sector continue to languish under high manpower costs and red tape. Fourth, there is a big worry over the huge imports of telecom equipment and devices at a time when India’s trade deficit is ballooning.”

Old wine in a new bottle 

The new policy, says Business Line, is acknowledges problems, but almost all the solutions offered, find mention in earlier regulations and vision statements. Some of the major targets listed in the 2012 policy are still to be achieved.

“For example, the minimum broadband speeds are set at 512 kbps at present even though the 2012 policy had envisaged minimum broadband speeds of 2Mbps by 2015. The 2012 policy had also set a target of achieving 70 percent rural teledensity by 2017. In reality, the rural teledensity is just under 60 percent. Instead of delving into why these targets were missed and how things can be improved, the National Digital Communications Policy 2018 lists out more and new targets.”

The report opines that rather than re-stating old mission statements, the Centre should have focused on putting together a roadmap, explaining how it will execute these initiatives. When addressing the issue of reducing the financial burden on the telecom operators, the policy merely restates, says Business Line, that the plan is to rationalise government taxes and levies, apart from giving critical infrastructure status to the industry.

The reality is that these proposals have been pushed by the Department of Telecom for several years only to be blocked by the Finance Ministry, which has so far seen the sector only as a non-tax revenue generator for the exchequer. If the Centre wants to really prepare the country’s telecom sector for the upcoming digital revolution, it must go beyond giving mission statements to ensure that the vision translates into reality on the ground,” reported The Hindu Business Line.

A historical perspective 

Even as we analyse the latest developments, a look back at India’s telecom evolution offers interesting perspectives.  In 2017, a piece in, narrated how India’s telecom industry has been through a paradigm shift over the last three decades. Writer Prashant Pandhre offered a brief overview of the telecommunications market and observed that the industry has also undergone significant policy and regulatory changes through the years, in essence, leading to a control of market share of services by a few players. But it was not always so.

He recalled how in the early 1990s, the telecom sector was dominated by the Department of Telecommunications (DoT), which was the sole service provider.

The first whiff of reform came about in 1994 when the sector began a transition from a monopoly to a competitive structure. During this period, beginning with the deregulation of the sector and followed by the issuance of two major policy instruments — the National Telecom Policy, 1994 (NTP94) and the New Telecom Policy 1999 (NTP99) — the transition to a competitive market-based structure was successfully accomplished,” wrote Pandhre.

As was inevitable, he says, the dominance of DoT, as the sole operator subsided with the entry of a number of private operators in various services such as fixed line, mobile telephony, international long distance and internet service providers.

Telecom licenses, he adds, were allocated by the DoT through auctions at a circle level with the country divided into 23 circles (in most cases each circle represented a state). Each circle was allotted two licensed operators.

The piece recalls that the market for fixed telecom services was highly concentrated and the existence of a telecom regulator in the form of Telecom Regulatory Authority of India (TRAI) too acted as a check on service providers abusing their dominant position.

“Bharat Sanchar Nigam Limited (BSNL) made substantial progress; reduced tariffs, improved efficiency and it can be argued that this was entirely due to the force of competition leading to efficiency gains,” he wrote.

“The transition for BSNL from a monopolistic firm which had a previous history of being impervious to consumer demands to a firm that adapts and responds to market competition ultimately led to providing a surplus to its consumers.”

The subsequent growth of the mobile services industry was phenomenal, narrated the piece and it all began in 1997. The government, informs the writer, followed a policy of “managed competition” by licensing more than one service provider in a telecom circle. In fact, a majority of the 28 Telecom circles that were present at that time had at least four to six services providers.

The private mobile operators grew on new and latest state-of-the-art technologies. Entry of a new player Reliance Infocomm Ltd. in 2002 saw introduction of CDMA (Code Division Multiple Services) services across 17 circles on a countrywide basis. CDMA has since been growing faster than GSM. The existences of the two standards have made both the markets for GSM and CDMA services very competitive. This is especially so when the market for CDMA services was highly concentrated with just two service providers accounting for almost the entire output.”

Every telecom operator was assigned certain portions of the spectrum to use in India through auctions and administrative allocations. Essentially, the spectrum “bands”, and frequencies around a particular band were then auctioned off, says the piece and adds that the years of 1998 and 2004 saw 2 rounds of spectrum auctions with major share being grabbed by the existing players.

“Later in 2008, the government’s policy bypassed the spectrum auction process leading to controversies. The Government’s move of selling spectrum by way of a first come first serve basis rather than by auction and fixing of prices based on 2001 prices was alleged to be an outcome of the nexus between a few dominant players and government representatives. The result was that major frequencies were captured and held by a very few operators and in some cases even by few non-serious telecom players leading to hoarding of the spectrum,” Pandhre wrote.

These controversial auctions as is well documented led to legal snarls and the eventual cancellation of spectrum licenses. The ensuing bad blood, losses and stagnation led to an upward revision of prices, consolidation and smaller players exiting from the industry, according to the writer.

Early gains

What we are reaping today are the fruits of the National Telecom Policy of 1994 and The New Telecom Policy of 1999 that, according to the piece, set up the blueprint for opening up of the telecom sector in India.

“The pace of growth and the achievements in terms of statistics have been quite spectacular, with an average addition of 18 million subscribers every month, contributing nearly 2 percent to the Indian GDP and with a tele-density of 84 percent the Indian telecom industry is considered to be the second largest telecom market in the world.”

“Intense competition in the sector eventually led to government intervention in the form of setting up of a regulator TRAI (Telecom Regulatory Authority of India) by a special act of parliament. With more maturity in the sector and with an aim to provide stable and equal opportunities over disputes. The Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) was set up.”

Since all service providers were new, says the piece, their competition was more in terms of price and conditions of sale and of late these two aspects are much in public scrutiny thanks to the timely intervention, on various occasions, by the regulator.

As the article rightly points out, the penetration of mobile telephony in rural areas, turned the farming communities into the biggest beneficiaries and banking and other reforms like financial inclusion were also made possible with the telecom revolution.

“The telecom industry in India started as a monopolistic regime controlled by the DoT and gradually transformed into an industry flooded by private players. Today it is in an era of consolidation and may likely see the existence of only a few players and if this indeed happens then the industry may have literally come a full circle,” the writer wrote.

The take away is that regulations have played a significant role and as the writer says, the government started off as a market participant and transitioned to a facilitator and further as a regulator.

The telecom commission and the setting up of an independent regulator TRAI, according to the writer were significant as TRAI made it a mandatory provision for all the private players to provide a certain percentage of services in the rural areas under the USO (Universal Service Obligation), and further opening of the sector and introduction of mobile telephony led to penetration in rural areas taking tele-density to a record level of 84 percent today.

The piece says and correctly so that the entry of a new entity with disruptive technology again is making the merger and acquisition space active.

“The industry currently is at a very interesting stage and one has to see whether this consolidation will again lead to concentration of the market by a select few. However, it can be said without doubt that the consumer has been the biggest beneficiary,” Pandhre wrote.

Will the consumers continue to be the biggest beneficiary or will dominant players restrict the array of choices available to them, is another question that only time will answer. – Money Control

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