A new Vajpayee moment for the troubled Indian telecom sector

Synopsis: There is a need to maintain a robust telecom sector for country-wide access to citizens and for accelerating economic growth.

Introduction

India opened up the telecom sector to private investment in 1994. But, aggressive bidding by companies to get licences led to financial stress, including defaults.

Reforms introduced in 1999 by the A.B. Vajpayee government show that the policy interventions can have a multiplier effect across the economy.

What reforms were brought by Vajpayee govt in telecom sector?

New Telecom Policy: The government allowed telecom companies that held licences under the earlier auction to exit the contracts they had signed.

The New Telecom Policy sought to transform in a time-bound manner the telecommunications sector to a greater competitive environment in both urban and rural areas providing equal opportunities and level-playing field for all players.

Steps taken in that direction were easing of entry restrictions and strengthening the Telecom Regulatory Authority of India.

Adjusted gross revenues (AGR): Companies were allowed to shift from paying fixed licence fees to paying the government a share of their adjusted gross revenues (AGR).

Telecom companies also agreed to withdraw the multiple cases that had led the entire telecom sector into a legal mess.

What is the present scenario in telecom sector?

Present state of affairs in the telecom sector require govt’s intervention.

Interventions by SC: The Supreme Court instructed telecom companies to share core telecom revenues with the government, and also take into account promotional offers to consumers, income from the sale of assets, bad debts and dealer commissions.

SC has asked to pay excess AGR dues to the government in ten annual installments to ease their immediate burden, raising concerns about the financial stability of Bharti Airtel and Vodafone Idea.

Inability to charge customers: Tariff hikes to generate extra revenues to meet AGR commitments will hurt consumer access. It means that the three-player telecom market becomes a duopoly, through either a firm’s failure or acquisition.

What steps should govt take?

Govt must issue zero-coupon telecom bonds

-No immediate interest costs to telecom companies: It would ease pressure on cash flows without tariff increases, and telecom companies will have no immediate interest costs.

-Tradable instruments: These zero-coupon telecom bonds should be tradable instruments, so that the government does not necessarily have to hold on to them till maturity.

-Accompanying voucher: The zero-coupon bonds should be accompanied by a voucher which gives the government an option to get a 10% equity stake in the issuing companies.

Set up an independent committee: The government should also set up an independent committee of experts to calculate the excess AGR dues to be paid based on a transparent formula.

Source: This post is based on the article “A new Vajpayee moment for the troubled Indian telecom sector” published in Livemint on 9th September 2021.