How to avert a telecom meltdown

How to avert a telecom meltdown

At the least, waive penalty and interest.

It is welcome that the government has set up a committee of secretaries to address the telecom sector’s woes in the wake of a Supreme Court ruling that puts an additional payment obligation of some ₹1,42,000 crore on the sector as unpaid revenue share, by way of licence fee and spectrum usage charge (SUC), and the penalty on interest on those unpaid dues, accumulated since 2003. Of this amount, reports put the dues of Airtel and Vodafone-Idea at above ₹80,000 crore. If these companies do indeed have to make these payments, it is likely that the number of private players left in Indian telecom would shrink to two and that would be bad news for consumers and the economy. The government should take steps to preclude such an eventuality.

Several avenues of relief are possible. True, the court verdict allows the plea of the department of telecom laying claim to the telcos’ revenues not derived from exercise of their telecom licence, by virtue of a condition in the licence agreement that says all revenue would be shared. But it is still open to the government to accept that claims on revenue, to generate which no licence was required, is arbitrary and to forgo that revenue, in part or in full. If a company that is not engaged in telecom makes profits from treasury management or capital gains from real estate transactions, these do not have to be shared with the government. A fast-moving-consumer-goods company does not count the margins of the distributor, to whom it makes sales, or of the retailer, as part of its revenue. Similarly, it makes no sense to include the margins of the retail sellers of airtime in the telcos’ revenues.

However, in the telecom sector, all these are counted as part of the shareable revenue of the operator. This is arbitrary; and is justified, ultimately, by the power of the State to set terms, regardless of principle or natural justice. Sure, the provision has legal sanctity, because the telcos agreed to such a condition when they migrated to a revenue-share regime from fixed-licence fees in 1999. But it was arbitrary to disregard the sensible recommendations of the sector regulator Trai and appellate body TDSAT on what are revenues derived from a telecom licence and, therefore, constitute shareable revenue. What the government can do is, at the least, to waive penalty and interest. Establishing the legal right to do something is different from exercising the right. Shylock, it may be recalled, did not take his pound of flesh not because he did not have the right to do so but when confronted with the added condition that he should not shed blood.

Another means of immediate respite to the telcos would be for the government to adjust the GST credit the telcos are due against their dues to the government. A high revenue share for licence fees and SUC made sense when spectrum was assigned on an administrative basis, but turned arbitrary after telcos started paying fancy prices for their spectrum won in auctions. Those revenue shares could be reduced drastically, along with the steep contribution to the Universal Service Obligation Fund, where nearly ₹50,000 crore lie idle.

What the government should disregard is the idea of setting a floor tariff. Tariffs have to go up, no doubt, but should do so in fair competition. Competitive markets for sources of potential cross-subsidy in telecom would be a better, market- and consumer-friendly solution.