Daily Answer Writing
16 September 2021

Q) Enumerate the different reasons for the economic crisis in the Telecom sector in India. What steps have the government taken to address it. (250 Words)

  • Source: The Hindu - Page 1/Front: Lifeline for telcos as govt. offers four-year moratorium on dues
  • Source: Indian Express - Page 1/Front: Major relief for telecom sector, Govt gives 4-year moratorium on AGR dues
  • GS 3: Economy, Technology


Approach Answer:

Introduction: The telecom sector is a strategic sector, essential for the growth of the nation as well as for its security. However, it has been facing many problems in the recent times. The number of telecom operators have been forced to shut down their business due to various reasons.


Reasons for the Crisis in Telecom sector in India:

    1. Increased Competition: For about an year Reliance Jio distributed free internet to its users, this forced at least 10 operators to shut their business and sell their assets. It further has moved the market towards a duopoly.
    2. High Auction bids, License fees and Spectrum usage Charges:  Currently, telecom operators pay 8% of the AGR as licence fee, while spectrum usage charges (SUC) vary between 3-5% of AGR. This is apart from the one time auction amount paid at the time of winning of the bids.
    3. Issue of AGR dues: The Government takes license fee & spectrum Charges on the Adjusted Gross Revenue of the Company which  includes all revenues from both telecom and non-telecom services. This makes it extremely difficult for the telecom operator to expand towards non-telecom sectors with their user-base.
    4. Additional levies/Surcharge: These include High Bank Guarantees (BG) requirements (80%) against License Fee (LF) and other similar Levies.  Further, extra fines are put due to the delay in the payment of these charges(at MCLR + 4%). The cumulative charges paid to the government are too high.
    5. High rate of lending: The companies have found the loans taken by them to buy the spectrum fairly expensive over the years. Only recently the MCLR  has touched around 6.5% for different banks, from above 9% a few years ago.
    6. Regulation Compliance cost: For example, extra cost is incurred due to strict KYC norms, mandatory paper-works, penalties due to poor network etc.
    7. Poor Private investment: There have been restrictions on FDI in the Telecom sector, which is highly investment intensive sector.
    8. Problems in setting new towers: These include stringent construction permits and restrictions in the residential areas where there is a huge demand for good network.


Steps taken by the Government recently:


Structural Reforms

    1. Rationalization of Adjusted Gross Revenue:  Non-telecom revenue will be excluded on prospective basis from the definition of AGR.
    2. Bank Guarantees (BGs) rationalized:
      • Huge reduction in BG requirements. No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.
      • For Auctions held henceforth: no BGs will be required to secure instalment payments. Industry has matured and the past practice of BG is no longer required. 
    3. Interest rates rationalized/ Penalties removed: From 1st October, 2021, Delayed payments of License Fee (LF)/Spectrum Usage Charge (SUC) will attract interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.
    4. Spectrum Tenure: In future Auctions, tenure of spectrum increased from 20 to 30 years.
    5. Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.
    6. No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
    7. Spectrum sharing encouraged- additional SUC of 0.5% for spectrum sharing removed.
    8. 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. 


Procedural Reforms

    1. Auction calendar fixed - Spectrum auctions to be normally held in the last quarter of every financial year.
    2. Ease of doing business promoted - cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.
    3. Know Your Customers (KYC) reforms: Self-KYC (App based) permitted. E-KYC rate revised to only One Rupee. Shifting from Prepaid to Post-paid and vice-versa will not require fresh KYC.
    4. Digitalization of paperwork: Paper Customer Acquisition Forms (CAF) will be replaced by digital storage of data. Nearly 300-400 crore paper CAFs lying in various warehouses of TSPs will not be required. Warehouse audit of CAF will not be required.
    5. For investment into network: SACFA clearance for telecom towers eased. DOT will accept data on a portal based on self-declaration basis. Portals of other Agencies (such as Civil Aviation) will be linked with DOT Portal.


Addressing Liquidity requirements of Telecom Service Providers(TSPs)

    1. Moratorium/Deferment of AGR Dues payment: of upto 4 years in annual payments of dues arising out of the AGR judgement as well as the past spectrum purchase, with however,  by protecting the Net Present Value (NPV) of the due amounts being protected.
    2. Interest payment by Equity: Option to the TSPs to pay the interest amount arising due to the said deferment of payment by way of equity.
    3. Restructuring options: Government can convert the due amount pertaining to the said deferred payment by way of equity at the end of the Moratorium/Deferment period, guidelines for which will be finalized by the Ministry of Finance.


Conclusion: Apart from these the telecom sector has been Identified as a 'Strategic Sector' in the national disinvestment policy of 2021. Also, government's focus on digitalization as well as the COVID-19 pandemic has increased the data usage in India which has been a boon for the sector. These advantages along with the steps taken by the government to boost the sector can save the competition in the sector.

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