Utilize a rear-view mirror for further telecom reforms

Synopsis: Article takes a look at the history of telecom disputes in our courts, which shackled the sector’s potential, and lessons that governing institutions must avoid going forward.

Background

– Read here: Telecom sector reforms – Explained, pointwise

What are some past telecom disputes that happened in India?

The 2G case: The 2G case was about spectrum allocation and its consequent loss to the exchequer.

– In the 2G case, the government’s ‘first come first served’ policy to allocate spectrum licences was not only discriminatory, it also favoured a select few.

– Advice overlooked: In addition, the Department of Telecommunications (DoT) overlooked the advice of the law ministry, Prime Minister’s Office and Telecom Regulatory Authority of India from time to time, and acted unilaterally.

– CAG estimates revenue loss: The CAG estimated a revenue loss of ₹1.76 trillion to the exchequer, alleging wrongdoing in spectrum allocations.

– SC cancels licences: The case reached the Supreme Court, which instead of punishing officers for corruption and/or cancelling the licences of companies that unduly benefited, cancelled all 122 telecom licences.

Supreme Court’s October 2019 ruling on the AGR case:

AGR dispute, which was about a disagreement on its definition, started in 2003. In this dispute, DoT holds significant accountability.

– Lack of trust in telcos: The DoT’s approach was marked by a belief that telecom operators were making windfall profits but withholding money from the government. This apparent lack of trust in telecom companies resulted in deference to a private chartered accountant (instead of the CAG) to define AGR while expanding the scope of gross revenue to include non-telecom revenues, and inadequate consultation on AGR with key stakeholders.

– Role of SC: SC failed to see the bigger picture. Instead of deferring to a specialized and neutral body, the apex court ruled on flimsy grounds that the tribunal had no jurisdiction over the matter. Given that the AGR orders of the government were set aside by various courts between 2006 and 2015, levying a penalty and interest on past AGR dues was plainly unjust. This reportedly inflated the AGR liability by about 300%. Yet again, the apex court failed to appreciate the economic fallout. 

What were the implications of 2G and AGR cases?

Impact of the 2G case: It adversely affected international relations, investments, competition and consumers. Moreover, the subsequent 2G spectrum auction was benchmarked to 3G rates, which forced the telecom companies to borrow more money, leading to an increased burden for many. Ultimately, the 2G case was a significant moment for the industry towards its decline.

Overall, Market competition and consumer welfare were directly impacted. Consequently, competition in our telecom market declined, which was once overcrowded with 10-12 operators.

What is the way forward?

Reforms introduced by the govt can only provide temporary relief. For a permanent solution we need a set of multi-pronged approach that could strengthen our reforms:

One, privatize state-run operators to ensure that they act as major competitors.

Two, make the exclusion of non-telecom revenues in AGR retrospective.

Three, use the unutilized Universal Supply Obligation Fund of about ₹58,000 crore for soft loans in this sector, and also reduce this fund’s levy from 5% to 3%, considering its poor utilization so far.

Source: This post is based on the article “Utilize a rear-view mirror for further telecom reforms” published in Livemint on 21st Sep 2021.