Need for reforms in Telecom Sector

Context: The government recently has approved structural and procedural reforms in the telecom sector.

About Telecom Regulatory Authority of India (TRAI):

• Established in 1997
• Established by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997
• TRAI is an independent regulator of Telecom Business in India.
• Aims to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government.
• Its mission is to create and nurture conditions for growth of telecommunications in India to enable country to have leading role in emerging global information society.
• It also provides fair and transparent environment that promotes level playing field and facilitates fair competition in the market.
• It also regularly issues orders and directions on various subjects such as tariffs, quality of service, interconnections, Direct To Home (DTH) services and mobile number portability.
• TRAI also fixes or revises the tariffs for telecom services in India.

Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT):

• The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI.
• TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI.

The proposed reforms include:

• Rationalisation of Adjusted Gross Revenue (AGR);
• Rationalisation of Bank Guarantees (BGs);
• Rationalisation of interest rates and removal of penalties;
• Dispensing with the requirement of BGs (for auctions held henceforth) to secure instalment payments;
• Increasing spectrum tenure from 20 years to 30 years (in future auctions);
• Permission for surrender of spectrum after 10 years (in future auctions);
• Dispensing with the requirement of Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions;
• Removal of additional SUC of 0.5% for spectrum sharing;
• Permission for 100% Foreign Direct Investment (FDI) in telecom sector under automatic route subject to safeguards;
• Fixed time for spectrum auctions (normally in the last quarter of every financial year);
• Requirement of licenses under 1953 Customs Notification for wireless equipment replaced with self-declaration;
• Permission for Self-KYC;
• e-KYC rate revised to only one Rupee; Dispensing with the requirement of fresh KYC for shifting from Prepaid to Post-paid and vice-versa;
• Replacement of paper Customer Acquisition Forms with digital storage of data;
• Easing SACFA clearance for telecom towers; and Addressing liquidity requirements of the Telecom Service Providers by way of moratorium/deferment.

About 4G coverage:

• 4G mobile coverage has been provided to 98% of the population of India.
• This massive 4G roll- out has boosted economic activities across the country, which has resulted in growth and creation of job opportunities.

About 5G coverage:

• As far as 5G is concerned, permissions have been accorded to Indian TSPs for conducting trials for use and applications of 5G technology.

Structural Reforms:

• Rationalisation of Adjusted Gross Revenue: Non-telecom revenue will be excluded on prospective basis from the definition of AGR.
• Bank Guarantees (BGs) rationalised: Huge reduction in BG requirements (80%) against License Fee (LF) and other similar Levies.
  • No requirements for multiple BGs in different Licenced Service Areas (LSAs) regions in the country. Instead, One BG will be enough.
• Interest rates rationalised/ 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.
  • 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.
• Spectrum Tenure: In future Auctions, tenure of the spectrum increased from 20 to 30 years.
  • Surrender of spectrum will be permitted after 10 years for spectrum acquired in the future auctions.
  • No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
• Spectrum sharing encouraged: Additional SUC of 0.5% for spectrum sharing removed.
• FDI Reforms: To encourage investment, 100% Foreign Direct Investment (FDI) under automatic route permitted in Telecom Sector. All safeguards will apply.

Procedural Reforms:

• Auction calendar fixed: Spectrum auctions to be normally held in the last quarter of every financial year.
• Ease of doing business promoted: The cumbersome requirement of licenses under 1953 Customs Notification for wireless equipment removed. Replaced with self-declaration.
• 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.

Significance of these reforms:

• Healthy Competition: It is a welcome step towards strengthening the industry and ensuring survival of players to maintain healthy competition for the benefit of the customers.
• Cash Flow and Relief: These measures are expected to ease the cash flow issues being faced by some players in the industry and provide relief to companies such as Vodafone Idea that have to pay thousands of crores of rupees in unprovisioned past statutory dues.
• Investment and Employment: This will pave the way for large-scale investments in the telecom sector. Investment means employment – more the investment, more the employment.
• Reducing NPAs: The telecom package comes as a relief to the banks as it mitigates the imminent possibility of default by vulnerable operators. This would help in stabilising and reducing the non-performing assets in the sector.
• Increased Repayments: The steps announced by the government will help the companies conserve cash and it will significantly improve the probability of repayment at least for the next 3-4 years.

Suggestive measures to improve Telecom sector further

• The removal of non-telecom revenues from the definition of AGR and the removal of penalty is a much needed change that has been brought in.
• There is a need for the government’s intervention in setting sustainable telecom floor tariffs, as it has done in the civil aviation sector to protect competition.
• More efforts are needed to address the significant losses in the balance sheets of a majority of the stakeholders.
• With a view to lead innovations in the next phase of technology development, the Department of Telecommunications has constituted a Technology Study Group on 6G.

The government should work on the recommendations it will receive from the Telecom Regulatory Authority of India (TRAI) on auction of spectrum in frequency bands identified for International Mobile Telecommunications (IMT)/5G in India.

Source: PIB