What is wrong with telecom policies?

In plain and simple words it promotes little incentive to do the right thing. What is right? It is nothing but just the stated objectives of the government - a) Attract adequate investments from all stakeholders; b) Efficient use of fixed assets, especially spectrum; c) Expand coverage of networks; d) Improve quality of service; e) Lead the process of technology innovation. Lets start from the beginning.

Basic Services Auctions (1995)

Poorly designed auctions as bidders were not required to pay upfront - leading to non serious players hijacking auctions by placing astronomical bids (like HFCL quoted Rs 85,000 Cr). This forced others to follow suit - leading to bankruptcy and settlement of 1999, wherein the fixed license regime was converted to revenue share.

Revenue Share Regime (1999)

It penalizes efficiency and aggressive investments in networks. The reason - a) Cost is not allowed to be deducted from revenues for the purpose of calculating license fees; b) Operators were demotivated to share networks resources due to double counting of revenues for the purpose of calculating license fees.

Subscriber Based Criteria (2004)

It promoted inefficiency by enabling less efficient GSM technology with two times the spectrum (for a given number of subscribers) compared with more efficient CDMA technology. This resulted in the following outcomes - a) Operators did not had any incentive to expand coverage in areas where subscriber density was less (like rural); b) Best features of CDMA technology could not be leveraged (like data capabilities), as doing so was penalized by preventing the CDMA operator to get any further spectrum; c) Prevented data market to develop.

Subsidized Entry of New Players (2008)

Spectrum was given like cinema tickets to players who could run fast to get ahead in the queue. The result - a) Entry of non serious players; b) Wastage of spectrum resources with many failed to run viable business.

3G Spectrum Auctions (2010)

Eight players chased only three blocks of 5 MHz in the 2100 MHz band which was put up for auctions. Banks were excited to lend liberally to operators who managed to secure subsidized spectrum from the government - leading to auction prices exponentially high. This gave a false impression to the government that they can price spectrum even higher to make more money. The results - Roll out of 3G networks suffered, as operators consumed all the money to buy spectrum.

Cancellation 2G Licenses (2012)

The Supreme Court cancelled 2G licenses which were acquired illegally in the year 2008 and ordered arrest of government officials and ministers involved in the 2G scam. The result - a) Loss of investor faith; b) Prevented correction of spectrum prices (fear of punitive actions by investigating officers).

Renewal Spectrum Auctions (2014 & 2015)

DoT auctioned spectrum of operators with expiring licenses. But did not offer any alternatives (fall back spectrum) - leading to intense bidding by players who had no intent to buy spectrum but to raise cost to gain market leverage. The result - a) price of spectrum increased further; b) loss of market competitiveness; c) lack of investments in networks and equipment.

Supreme Court's AGR Ruling (2019)

The supreme court recently supported the "definition of AGR" as interpreted by the government. This has resulted in huge outflows by the incumbent operators who wanted to pay license fees on revenues which emanated only from their telecom operations, and not from other operators (which did not mandate a license). The result - a) Operators inability to make investments in networks and equipment; b) Loss of market competitiveness; c) Loss of consumer leverage; d) Increase in prices of services.

Bottom-Line

The key metric to measure the effectiveness of policies to analyse whether it incentives actions of the operators to drive objectives of the government as describes above. From the above description it looks like they haven't. This clearly proves that telecom sector could have contributed significantly more than what it has till date. Therefore, unless the policies are revamped to align incentives the telecom sector will continue to limp and consumers suffer (poor quality and sub-optimal services). But this suffering may not be explicitly visible in absence of his inability to experience the outcome if the policies were tuned properly - leading to no one complaining when operators are bleeding, huge amount of spectrum lying waste, lack of investments in new technology, lack of expansion of network coverage etc etc. Thereby not pushing the government to make the necessary correction. This is the tragedy of the telecom sector.

(Views expressed are of my own and do not reflect that of my employer)

PS: Find the list of other relevant articles in the embedded link.