Telecom trouble

Telecom trouble

Hysteria over corruption has resulted in extreme spectrum prices and harmed the industry.

India’s telecom sector – critical to building a 21st century infrastructure for the country – is in serious trouble. Burdened by debt and losses, a Supreme Court verdict last week added to its woes. The apex court upheld a government claim against telecom operators which will cost the latter a whopping Rs 92,000 crore. This has to be paid in three months. Telecom sector problems are not new and they have been partially responsible for pruning the number of service providers from around ten a few years ago to four today. Even as the industry struggled financially, mobile phone connections have grown exponentially over a 15 year period, and India is today the largest data consumer per smartphone.

The current situation is worrisome because even as China and the US are off the blocks in the transition to the next generation technology, 5G, Indian telecom industry’s financial health is bad. 5G will require big investments and an industry burdened by over Rs 7.5 lakh crore of debt is utterly unprepared for it. There are myriad factors for the current state of the industry. But two which have played a prominent role are the political hysteria over corruption in spectrum allocation and the attendant impact on the floor prices in spectrum auctions. This is not to say that wrongdoing should be condoned. But the cure shouldn’t prove worse than the disease.

India stands out when juxtaposed with China or US in spectrum auctions. China has for all practical purposes given spectrum free to gain 5G dominance. US has begun allocating spectrum at prices described as historically low. The Centre needs to display clarity in telecom strategy. Is the aim revenue maximisation? Or, is it encouragement of a sector that critically enables infrastructure and multiple economic activities? Keep in mind that ramping up economic activity eventually translates to higher government revenue.

The government should move away from short term revenue maximisation. This has resulted in some of the world’s highest spectrum prices and also weakened public sector banks which have large exposures to telecom companies. The Narendra Modi government has the political capital to break this vicious cycle. Spectrum prices should be realistic. It’s not a giveaway but an investment in India’s future. Government must provide relief to the telecom sector following the apex court’s judgment. Else, lack of competition will become as much of a problem there as unrealistic spectrum prices.