Imagine 5-year-old Indian children in the years 1995, 2000, 2005, 2010, 2015 and 2020. These children represent the evolving ‘generations’ of telecommunication devices and services of their era. With each step, costs reduced, access widened, capabilities multiplied, and consumer habits changed. Today, phones have attained the status of a companion, not a mere communication device.
Figure 1 shows the technological disruptions taking place in mobile communication between 2014 and 2018. 4G services have rapidly expanded their reach after commencement in 2016, holding more than 3 quarters of the wireless subscriber base in 2018. Subject to affordability, newfound needs due to COVID-19, the 3G and 2G segments will also see upward migration. Also, CDMA technology has ceased to exist, with firms concluding their technology operation by late 2016.
The Digital Divide
Access services comprise of the last-mile network between the consumer and the first point of access. From Figure 2, we observe that the market structure for access services is a 3-way split between Reliance Jio, Bharti Airtel and Vodafone-Idea, with each holding approximately a third of the market share, with the state-owned Bharat Sanchar Nigam Limited (BSNL) subscribers comprising the remaining 10%. Each of these players abides by the principle of rendering a Universal Service Obligation (USO). USO is aptly described as
…providing telecommunication service with access to a defined minimum service of specified quality to all users everywhere at an affordable price.Universal Service Obligation Fund
USO is an essential fundamental obligation of telecom operators in most jurisdictions, flowing from Article 1(d) of the Constitution of the International Telecommunications Union, which details the purpose of the Union “to promote the extension of the benefits of the new telecommunication technologies to all the world’s inhabitants”.
The concept of USO in India, however, has not been truly universal. The table below gives a breakup of wireless services (voice and internet) as per rural and urban areas: –
|Parameter||Rural Areas||Urban Areas|
|Wireless Subscribers||514 million||659 million|
|Internet Subscribers||440 million||248 million|
|Internet Subscription per 100 population||27||104|
Source: TRAI (2020: i – ii)
The rural-urban gap was much wider back in 1999 than it is today. Bridging this gap became a key policy objectives in the New Telecom Policy of 1999. Subsequently, a Universal Service Obligation Fund (USOF) was established through a 5% charge levied on the Adjusted Gross Revenue of telecom licensees (PRS Legislative Research 2020). The USOF currently funds the following initiatives –
- Setting up of towers in left-wing extremism affected areas
- Comprehensive telecom development plan for the North-East region
BharatNet is a 3-phased scheme aiming to connect 2.5 lakh Gram Panchayats (GP) of India through 6.5 lakh km of Optical Fibre Cable (OFC). The table below gives the progress update of this scheme.
|Length of OFC laid||6.5 lakh km||4.33 lakh km||66.6%|
|Number of GPs where OFC laid||2.5 lakh||1.52 lakh||60.8%|
|Number of service-ready GPs (OFC Equipment is Connected and Installed)||2.5 lakh||1.40 lakh||56%|
The table must be understood in the following contexts: (a) wired internet subscribers account for 3.2% of the 680 million odd Internet subscribers in India; (b) Inter-cell tower OFC connectivity is a mere 25-30%, and (c) 5G needs inter-tower fiberisation levels greater than 70%.
One of the main issues in expansion of the OFC network is that of high capital investments. The following figure gives a global picture of how increasing fibre consumption ‘pulled’ higher capital investments from telecom firms.
The National Digital Communications Policy 2018 (NDCP 2018), recognised that the existing ‘fibre deployment gap’ is unsustainable to realise India’s $5 trillion knowledge economy. The Preamble to the Policy states
It would be critical to focus on Digital Communications infrastructure development initiatives related to fibre deployment and Right of Way clearances, for both overground and underground infrastructure, that will form the bedrock of next generation technologies.Preamble to the National Digital Communications Policy
The problem of capital investments in telecom
The AGR Judgement – Who Won and Who Lost?
Implementation of the NDCP 2018 framework vis-à-vis optical fibre requires massive investments. These investments need vibrant financing mechanisms, sufficient risk-appetite, contract enforcement and regulatory certainty. Recently, the Supreme Court of India in Union of India v. Association of Unified Telecom Service Providers of India, (2019), adjudicated upon the issues related to payment of dues calculated from Adjusted Gross Revenue (AGR). The apex court ruled in favour of the government – delivering a far reaching verdict on players like Vodafone-Idea and Airtel. Vodafone-Idea is now saddled with debt of ₹52,000 crore, while Airtel has dues of roughly ₹34,000 crore. Dues from 13 other operators like Reliance Communications, Tata Telecommunications, Aircel aggregate to another ₹60,000 crore.
Two aspects about this judgement merit much attention.
- In the absence of judicial certainty from the Supreme Court, is it fair to be demanding non-principal time-sensitive amounts (interest, penalty, and interest on penalty) as per the License Agreement?
To elucidate this point, let us examine Figure 6 which breaks down Bharti Airtel’s dues of ₹35,586 crore. The time-sensitive amounts account for 46% of the entire dues burden (sum of penalty, interest, interest on penalty). Sunil Jain (2020) explains how an ‘AGR due’ of ₹12 (principal amount) in the year 2007 would inflate to ₹62 and ₹32 on account of Licensee Fee (LF) and Spectrum User Charges in 2020. Such regressive interpretation of contractual obligations in a highly uncertain environment give negative market signals to firms.
- A careful reading of the Supreme Court judgement can lead us the possible principles applied in determining the component wise AGR inclusions and exclusions. The principle can be stated as: Any flexibility in terms of amount of payment or time of payment to consumers by telecom service providers helps in customer retention and business expansion. Subsequently, it helps in revenue realisation of some sort, and hence must be added to the revenue of the service provider.
The above developments have severely stressed the balance sheets of the existing legacy players, and has reduced their ability to undertake much-needed capital investments. Prohibitive costs are choking the efforts to increase fiberisation. The brunt of this is and will be borne by consumers, who are likely to experience decreasing quality of service. Increasing call drops and poor data speeds should not come as a surprise.
Never Waste a Crisis
COVID-19 has only reinforced the strategic status of India’s telecom manufacturing and service ecosystem. The pandemic has exposed the digital divide that persists in India. Going forward, the telecom sector is in need of legal, structural and policy interventions. The following recommendations, some inspired and written in the NDCP 2018, should be undertaken on a priority basis:-
- Driving up demand is important, and this has partly already happened as a result of the pandemic making everything go virtual. Still, developing user content in multiple Indian languages is likely to further generate demand, as linguistic barriers of ‘English’ can be crossed. The development of instructional content for foundation literacy and numeracy in vernacular languages must be accelerated. This will make a case for e-learning possible. The State Council of Educational Research and Training, in collaboration with the regional NIC centres, can be the nodal authorities for this project.
- Optical fibre should be accorded the status of critical infrastructure and public utility. This will serve a three-fold purpose – (a) allow for prioritisation in government policy coordination, (b) be a positive market signal to scale up indigenous fibre optic production and (c) increase the demand for related network equipment for signal processing
- The work related to fibre deployment must be included under the Mahatma Gandhi National Rural Employment Gurantee Scheme. This will allow labour mobility to even migrant labour at a time when unemployment is high, economic activity remains weak, and social distancing remains the need of the hour.
Rajat Asthana is a Master of Public Policy candidate at the National Law School of India University, Bengaluru, and has a Bachelor’s degree in Electronics and Communication Engineering from National Institute of Technology – Warangal.
Rajat is interested in bridging the digital divide and exploring the transformative effects of information and communication technology. He can be reached at firstname.lastname@example.org
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