A tale of two policies

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity …”

It is the 30th anniversary of economic reforms in India. And there is much to laud and celebrate in our journey since 1991. It is, however, perhaps also time to make it a reality check too on some of our policy choices, processes, implementation and results. Even as we celebrate the landmark milestone, we grapple with the immediacy of the latest of the many challenges our telecom policy has thrown up time and again. There is, too, renewed interest in China and its recent crackdown on big digital/data companies of the new age, even as their policy framework rapidly evolves and transforms. It is therefore perhaps worthwhile to take a quick look at the telecom policy narratives of the two neighbours.

The story of the mobile telecom revolution for both countries starts around 2000-01. In the case of China, it was classified as a national priority and a newly created Ministry of Information Industry (MII) took the path of creating 3 competitive state-owned telecom giants — China Telecom, China Unicom and China Mobile — from its earlier monolith telecom department, in which it allowed progressive and calibrated participation by foreign telecom carriers under a new regulatory regime in alignment with its WTO obligations. Its focus for the telecom sector for private participation during this period was on telecom equipment, where it encouraged foreign equipment vendors, eager to access the huge China market, to invest with concomitants of technology transfer.

Today, Huawei and ZTE — despite multiple allegations and accusations — are global giants dominating world markets for telecom equipment, having acquired or decimated erstwhile suppliers and collaborators. At the end of 2020, 1.22 billion people had mobile subscriptions in China — 83 percent of its population. It is today at the cutting edge of the adoption of 5G technology, accounting for nearly 87 percent of all global 5G connections (Source: The Mobile Economy: China 2021, GSMA Intelligence). China, by all accounts — even as it pivots in its policy and regulatory choices — is now well poised to ride the crest of the next wave of global value creation on a strong digital foundation.

Cut to the India story. India began its telecom liberalisation under the P.V. Narsimha Rao government with a quasi-markets policy in late 1994-95. It allowed both state-owned and private players to slug it out in the market via auction of licence (to private carriers) on a competitive bid basis. It also set up a separate regulatory authority and tribunal, for tariff regulation, resolving disputes and “protecting the interest of the service providers and consumers as well as promoting and ensuring orderly growth of the telecom sector”.

High licence fees were however a hurdle in reduction of tariffs, hampering usage evangelisation and eventual democratisation of the market. Besides, most existing players were not able to meet their commitments. In 2000, the Department of Telecommunications (DoT) reduced licence fees and the famous AGR (Adjusted Gross Revenues) sharing was introduced, even as the permissible stake of foreign investors in mobile carriers was increased. The floodgates opened and in the rush of exuberance, many players entered the high potential Indian mobile telecom markets.

Tata Indicom, Birla Communications (later Idea after multiple takeovers and mergers), Spice, Hutch Telecom (subsequently sold to Vodafone in an offshore transaction), R-Com, Loop Mobile, Aircel, Airtel, et al bid aggressively for the licenses/spectrum with high AGR sharing, even as they invested huge amounts of capital in the rollout and marketing to capture market share.

The mobile rollout exploded and India became one of the largest and cheapest telecom markets in the world. Doubts were however raised then as to costs, effectiveness and sustainability. For the backdrop to all this, was a fight-to-the-death among a crowd of telecom companies as they poured mind-boggling sums raised from investors and banks into this winner-takes-all market bloodbath. All this while the government/regulator adopted a hands-off approach, largely abdicating its public policy and public interest role to unbridled and irrationally exuberant markets and limiting itself to an opportunistic maximisation of financial extraction by way of highest AGR sharing and even retrospective taxation from the sector.

Many fell by the wayside in this mindless battle, even as allegations of manipulation and adhocism, sellouts, mergers, alliances, bankruptcies took place and enormous sums of capital — mostly public funds — were destroyed. In the debris of this wholesale destruction, rent-seeking allegations in the government process surfaced, which caused the judiciary to direct an auction and maximisation-of-revenue approach to all-natural resources — including spectrum. Leading to a further melee of high stakes poker, drama and allegations of regulatory capture — with telecom companies, government and judiciary adopting confused multiple roles as sometimes players, sometimes regulators and sometimes adjudicators.

So where did it end up in terms of outcomes for telecom policy? A survey of the mobile telecom battlefield today shows there is an ailing and (presently) uncompetitive state-owned player — BSNL, requiring a bailout package of nearly Rs 70,000 crore (a substantial chunk of which is towards employee retirement) with barely 10 percent of market share. A fast declining, almost terminally ill, Vi with a market share of about 23 percent and requiring a bailout package of about Rs 70,000 crore (most towards its irrationally promised AGR sharing dues of the past, pursued with Shylockian interpretation and determination by the government).

Bharti Airtel with about 30 percent market share, which has yet managed to keep its head above water and battles it out while others have drowned and exited. Jio, the late entrant with superior technology when others had already bled each other of a lot of capital blood, with about 37 percent market share and which has since blitzkrieged competition amid allegations of predatory pricing. And a sector that is fast heading towards an unhealthy duopoly in what Deutsche Bank analysts have described as the most painful telecom market they have come across.

In terms of policy achievements, mobile subscribers in the country stood at 1.18 billion and wireless teledensity stood at about 86 percent as of May 2021 (Source: TRAI Press Release 35/2021). India today, is one of the lowest-cost markets for mobile and data users. As for policy costs — in terms of destruction of public capital, companies, market structure, sustainable future growth, these are still being tallied.

As telecom moves to 5G and beyond, India already lags behind its neighbour. Also with an emerging duopoly, doubts on capital raising and adequate competition for an ever-evolving digital platform-critical for future global value creation and capture in the new age economy — are beginning to be raised.

It is true that wisdom is often found in the rearview mirror. But equally, those who don’t learn from history, end up repeating it. It is perhaps time that the telecom policy is revisited for the long term and in a holistic, integrated manner. With public interest again taking centre stage, and looking to the future of an infrastructure sector that is critical to the economic development and competitive advantage of the nation. As Charles Dickens also wrote — ”Nothing that we do is done in vain. I believe, with all my soul, that we shall see triumph”.

A well-thought-through and sustainable policy based on sound principles this time around would help.