The Telecom Regulatory Authority of India has suggested changes in the regulatory practices to improve the ease of doing business in the telecom industry. In a document released recently, the telecom regulator has suggested the simplification of the verification process for licence fees and spectrum usage charges which is a long-standing demand of the telecom companies and other stakeholders.
The other recommendations by the telecom regulator include granting of critical and essential services status to submarine cable laying and repairs, and the creation of a single-window portal for time-bound inter-ministerial approvals. This user-friendly, transparent and responsive portal will use the latest technologies to make the whole process of approaching different ministries less cumbersome. Further, in respect of payment of AGR-based license fee and spectrum usage charges, TRAI has recommended that the deduction verification process must be reviewed and 100% verification should be replaced with sample base deduction verification.
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The telecom regulator’s recommendations are in line with industry stakeholders’ demands. Telecom companies in India have regularly sought relief from the heavy tax burden – they pay licence fees, spectrum usage charges, and various other taxes and levies. The telecom companies say that these taxes are unjustified and have been affecting their profitability and growth, clipping the wings of a sunrise sector.
The government had recently imposed a higher goods and services tax (GST) on telecom services compared with other sectors. This has also hampered revenues. With a license fee of 8% of the Adjusted Gross Revenue (AGR) including 5% as Universal Service Levy (USL), India’s tax regime is one of the highest in the world.
India’s regulatory environment for the telecom sector has long been criticised for being complex, inconsistent, and unpredictable. This has rendered clarity and transparency a distant dream for the telecom sector. On top of it, frequent policy changes, delays in spectrum auctions, and unlevel playing field have impacted the sector’s growth and competitiveness. The allocation and pricing of spectrum needs a transparent and predictable approach which will reduce uncertainty. Further, the government must also look to incentivise investment so that new players can emerge in a sector which is feared to become a monopoly someday. Industry insiders believe that regulatory biases are making foreign investors hesitant to participate in the sector.
Ease of Doing Business (EoDB) has been identified as one of the focus areas of government and India has vastly improved its EoDB rankings in the last decade. However, the World Bank discontinued its EoDB index in the wake of a data-rigging scandal involving four countries including China and Saudi Arabia. According to an enquiry that led to ceasing of publication of EoDB reports, it was found that rankings were changed under pressure of funding.
A snapshot of the Indian telecom sector
The Indian telecom industry is the second largest in the world, second only to China. The sector has a subscriber base of 1.17 billion as of September 2022. India has an overall tele-density of 84.86 %. Of this, there is a large urban and rural divide as the tele-density of the rural market stands at 58.01 % while the tele-density of the urban market is 134.62 %.
The industry’s exponential growth over the last few years can be primarily attributed to a data revolution brought in Mukesh Ambani’s Reliance Jio. Thanks to affordable tariffs, wider availability, roll-out of Mobile Number Portability (MNP), expanding 3G and 4G coverage, and evolving consumption patterns of subscribers, India’s telecom industry has been witnessing a boom. However, not all telecom companies have thrived and the debut of Reliance Jio in the market is crowding out competition.
The telecom industry has virtually become a duopoly of market leaders Reliance Jio and Bharti Airtel, leaving very little space to competitors Vodafone Idea and state-run BSNL. Vodafone Idea, the country’s third-largest private operator, is struggling to script a comeback, even with the government agreeing to convert its outstanding liabilities into equity. BNL is working on a revival after a voluntary retirement scheme made it a lean organisation by reducing its staff strength by two thirds.
The sectoral revenues topped Rs 3 lakh crore in the financial year 2022-23 on surging demand for data and content. The incomes rose by 20% in the year to Rs 3.1 lakh crore, compared with Rs 2.6 lakh crore in 2021-22. The government earned Rs 16,700 crore from licence fee collections.
To further catalyse digital connectivity, the government approved the auction of IMT/5G spectrum for deployment of 5G services within the country. This auction grossed $18.77 billion. That the telecom industry is pivotal to India’s growth landscape can be gauged from the fact that it is the third largest sector in terms of FDI inflows and it contributed to 6.43% of total FDI inflow. The sector became an FDI magnet between 2014 and 2021 with inflows rising by 150% to $20.72 billion from $8.32 billion during 2002-2014. The telecom industry also provides employment to 2.2 million people and indirectly leads to 1.8 million jobs.