Telcos should seek removal of unjustified levies

Telcos should seek removal of unjustified levies

Telecom operators have reportedly asked the sector regulator, Trai, to set a floor price for voice and data tariffs to ostensibly tackle competition. This is a bad idea, and plays against consumer interests. Marginal costs have fallen sharply: calls that use data packets have become ultracheap, as has data transmission itself. A floor price will deprive consumers of the benefit. The sector regulator has a policy of forbearance towards tariffs, giving telcos freedom to fix their own tariffs except in the case of national roaming, fixed rural telephony and leased lines. A reversal of the hands-off policy would be retrograde. Let the market set tariffs. But telcos have a case demanding sharp reduction in government levies.
About 35-40% of the capital expenditure of telcos is on building the network, the bulk is on buying spectrum from the government. Yet, after buying spectrum at eyewatering prices, telcos are still required to part with a large share of the revenue as licence fee and another chunk of revenue as spectrum usage charge.
Various levies —license fee, spectrum usage charge and universal service obligation fund — and taxes account for over 30% of the industry’s revenues, which the industry claims is the highest in the world. Spectrum fees are now determined through competitive auctions. Revenue share as licence fee made sense when spectrum was made available as part of the licence without any significant upfront payments. Now companies bid for and buy spectrum at fancy prices. The telecom business, like any other business, should pay corporate tax on profits. The only other levy that is warranted is a small fee to cover the cost of regulation. It is appalling that 4G speeds in India are ridiculously low, compared to Singapore, South Korea, Japan and even Pakistan. Companies must be left with more of their revenue, so that they can invest in their networks.
If there is anti-competitive conduct in the industry, the right remedy is to let the Competition Commission of India fix it. A floor price for tariffs is against all economic sense and the dynamics of an industry where technological change is driving costs down relentlessly.