Users and service providers are swimming against the tide even after the abolition of retro tax.
Shyam Ponappa | August 24, 2021
Undoing the retrospective tax amendment affecting Vodafone Group and Cairn Energy among others was an excellent move, and proves what the government can do. In this spirit, two more shackles must go for us to fully exploit telecom and digitisation:
a) Adjusted gross revenues (AGR) for telecom operators need to be defined rationally as licence-related revenues by policy and legislation.
b) Spectrum allocation and pricing need a complete revamp. Appropriate policy and legislation can enable spectrum use as a resource for the common good, paid for by a share of revenues for usage instead of auctions. This will make spectrum costs an operating expense, and will not require enterprises to make up-front capital investments, as with other resources: Electricity, water, and leased land.
Like the retro tax, these self-imposed constraints have restricted telecom and digitisation support, limiting our capacity. It is like swimming against the current, whereas policy changes can remove these limitations, enabling service providers and users to swim with the current. Removing all three would do that, putting India’s telecom and broadband into a much higher trajectory in realising our overall potential.
The government must frame policies for the public interest in communications and digitisation in a fair, transparent way, to break out of the absurd situation of pricing spectrum at five times the Organisation for Economic Co-operation and Development nations, whose per capita income is 15-20 times higher. This will help us resolve the contradictions of the lowest-priced broadband with the highest cost structure, and atrocious service quality.
Policies to Clear Impediments
AGR: The overreach in the AGR definition is a self-created obstacle. The Department of Telecommunications (DoT) left the term undefined in the licence agreements in 1999. It was to be defined with the Telecom Regulatory Authority of India’s (Trai’s) recommendation, but when finalising licence agreements in 2002, the DoT ignored the recommendation that AGR should include only revenues from cellular mobile services. The operators’ appeal before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in 2003 was upheld in 2006; the DoT appealed in the Supreme Court. The SC refused to intervene, but ruled that the DoT could pursue its concerns with the TDSAT. The TDSAT in August 2007 accepted most of the recommendations made by Trai. And so it went, with many disputes and appeals by the UPA as well as the NDA governments, until a TDSAT judgment in 2015 overturned previous TDSAT orders, excluding only capital receipts. Later, an SC judgment in 2019 even included capital receipts.1
The following instances illustrate the absurd claims, contradictions, and orders:
- The government had informed the SC in a hearing in 2011 that non-telecom revenues were not to be included in the AGR.2 Yet, the TDSAT judgment of 2015 citing this statement ruled exactly the opposite, excluding only capital transactions.
- The SC’s judgment of October 24, 2019, dismissed the Trai and TDSAT recommendations of 2006 and 2007, and extended the definition of AGR to all non-telecom revenues. Previously, various courts had reportedly set aside such claims in 2006, 2007, 2011, and 2015.3
- Thereafter, in what appears as inappropriate discrimination in the absence of explicit policies, the SC in 2019 excluded public sector dues amounting to Rs 2.7 trillion from GAIL, Oil India, Power Grid, and so on. Expressing outrage at such demands on PSUs, the SC insisted that private operators must pay their dues of Rs 1.47 trillion. No wonder the DoT and the rest of the government seem confused, because like the retro tax amendment, these actions appear to be arbitrary.
Therefore, the government must frame a policy definition for AGR informed by Trai recommendations that is rational, in the public interest for better communications, fair, non-discriminatory between state-owned and privately-owned companies, and transparent. This will satisfy the SC condition of due process according to government policies.
Spectrum Allocation & Pricing
Current technology favours giving operators shared use of spectrum and networks across all technologies, because coverage and capacity increase at lower cost. Yet, because wireless communications evolved from a time when mitigating interference was the primary technological concern, the method adopted was of exclusive spectrum assignment (“allocation” in common parlance) of distinct bands to each operator. This method, initially a technological necessity, then became the customary practice because governments in many countries sought high fees from spectrum auctions. Many countries suffered as this burden led to the collapse of the sector for a decade.4 India was one of these, because the meteoric rise of our mobile telephony stalled, and is now so shoddy. The damage is pervasive, because of inadequate communications infrastructure that affects many areas, such as energy and water management, education and skilling, healthcare, and productivity across sectors —commerce, transportation, hospitality and tourism, manufacturing, agriculture— and in mitigating environmental impact.
Technology needs wider swathes of spectrum for high data throughput. It is also able to manage interference much better. We cannot have effective coverage without better wireless access networks. As we move towards 5G and beyond, the emphasis on wireless communications will increase. This can happen through sharing of spectrum and facilities among operators, which will likely be the norm in 5G and 6G, providing a high multiplier to network usage, while considerably reducing capital investment needs countrywide.
The government has to frame policies that help to do this, by removing obstacles such as retro taxes, AGR, and capital expenditure on spectrum. Replacing an extortionary approach to the communications sector with a constructive emphasis on infrastructure support will get us there, as well as enhance government revenues.5 Policies can be framed to help achieve better health, education, skilling, productivity, and living conditions. The major changes of using spectrum as a shared resource with payment for usage through a share of revenues, in combination with undoing retro taxes and AGR, are the required steps. There are different ways to do this, and the government needs to steer the process through consultations to an acceptable way for us to move forward with 4G, 5G and beyond, for effective communications and digitisation.
Shyam (no space) Ponappa at gmail dot com
1: https://www.theleaflet.in/agr-order-a-case-of-subjective-judicial-overreach/
2: https://dot.gov.in/sites/default/files/TDSAT%20Judgment%2023-04-2015.pdf
4: https://organizingindia.blogspot.com/2011/02/spectrum-auctions-jhatka-or-halal.html
5: https://organizing-india.blogspot.com/2020/08/configuring-indias-digital-ecosystem.html
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