High levies set to strangle telecom sector (The Hindu)

Mains Paper 3 : Economy
Prelims level : Telecom sector
Mains level : Liberalisation in telecom sector

Context

• The recent Supreme Court judgment on upholding the definition of Adjusted Gross Revenue (AGR) to include all revenues earned by the licensed Telecom Service Providers (TSPs), and just those of core services, appears to be the death knell for TSPs.

Liberalisation in telecom sector

• Telecom has been one of the brightest spots in India’s liberalisation journey, with the country being the second-largest in mobile subscribers and even mobile broadband subscriber base, next only to China and beating the US.
• Telecom and broadband Internet have string multiplier effects on the economy, leading to large-scale digitisation of consumer-facing services — including digital finance and commerce platforms — thus augmenting transparency, reducing information asymmetry, and most importantly, allowing for nurturing of the digital start-ups and innovation ecosystems in the country.

Regulatory fee

• The annual LF of 8 per cent which includes a 5 per cent Universal Service Levy (USL) is high compared to the international average.
• The USL since its implementation in 1999 has contributed more than ₹1,00,000 crore to the exchequer, of which there remains an unspent balance of about ₹50,000 crore in the book of accounts.
• Our rural penetration has improved, thanks partially due to the state-owned BSNL as well as efforts of the private operators.
• It is time the government looks at reducing the USL, thereby providing some relief to the TSPs.

Operator services

• The on-going price war between new entrants and the incumbents, which is also a cause of worry for the industry.
• TRAI has not intervened in tariff until now, the DoT seems to be mulling over fixing a floor price for telecom services.
• This shifts the burden to the weary consumers. In a sector with about four operators, the TSPs should be wise enough to adjust their pricing and revenue-earning strategies, so that they don’t incur loss.
• The list of burning issues is the Interconnect Usage Charge, especially the Mobile Termination Charge (
• MTC) which is to be paid by the originating carrier to the terminating carrier for voice calls.
• While TRAI has re-initiated the consultation process on its plan to reduce the MTC from the current level of 6 paise per minute, the ecosystem in the country will not permit MTC reduction to zero any time soon.
• Unless the penetration of mobile broadband nears 100 per cent (from the current level of about 30 per cent), reduction of costs for mobile termination cannot be brought down.
• Even if it is a pure packet-switched call, the marginal cost of terminating it cannot be ignored due to the associated spectrum and infrastructure cost.

Planned merger

• The decision taken to merge BSNL and MTNL has been a right one, considering the loss incurred due to MTNL’s diseconomies of scale.
• With the merger and the financial support given by the government, the new BSNL-MTNL entity should be mandated to compete effectively against the private operators, fulfilling their national goal of connecting rural and semi-urban areas of the country.
• Procurement policies of the entity should be made less stringent, so that it can deploy infrastructure especially 4G mobile broadband network quickly to overcome the lost time.
• Effective utilisation of the large assets of the combined entity across the country should commence so that it can become EBITDA-positive soon.

Conclusion

• With the merged BSNL-MTNL entity providing effective competition to private operators, the telecom market will soon become vibrant.
• But unless the underlying telecom and broadband services improve both in price and quality, a Digital India is a pipe dream.

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Prelims Questions:

Q.1) According to the data tabled in the Lok Sabha by the Ministry of Environment, which of the following species are considered extinct in India?
1. Pygmy hog
2. Sumatran rhinoceros
3. Pink-headed duck
4. Cheetah

Which of the statements given above is/are correct?
A. 2 and 4 only
B. 1, 2 and 3 only
C. 2, 3 and 4 only
D. 1 and 2 only

Answer: C
Mains Questions:
Q.1) Do you think the stiff licence fees and spectrum usage charges will impair the capacity of telecom majors to invest in infrastructure?