×
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

Study in contrast with key lessons for telecom sector

Escalation of crisis in telecom sector compared with de-escalation in stock market over last 20 years took place in same economy and political ecosystem. What sets them apart?
Last Updated 20 January 2020, 10:41 IST

Last week there was a well attended function in New Delhi to release the book of former chairman of Securities and Exchange Board of India (Sebi), UK Sinha. In attendance were top finance ministry and capital market officials, who had worked with the man with the second longest tenure at the Sebi. The tone of the meeting was of a job well done.

It was also the week when the telecom service providers grappled with the impact of a Supreme Court order to pay up about Rs 1.47 lakh crore to the government for licence and spectrum fees dues, pending since 2003. It has almost upended the telecom sector in India, since the loss making Vodafone-Idea could fold up because of the dues.

It is so amazing to watch the performance of the two sectors, as a study in contrast. In 1999 the telecom sector was given huge support to expand its footprint when the government decided to migrate them to a revenue sharing formula under the New Telecom Policy (NTP), instead of fixed license fees. The government step meant a leap of faith. It was telling the companies that as they grew, the government revenues from them would grow in tandem. The growth of the sector since then was spectacular.

Since 2004, when the telecom companies earned a combined Rs 4,855 crore, their revenue has expanded to Rs 2.38 lakh crore, by 2015. India’s tele density has jumped far ahead of the performance indicators that was set by the government, both in rural and urban areas. It should have been a stellar success story. Yet the sector is in crisis in 2020.

The securities market was also in crisis in 1999. There was the Videocon crisis. Within two years in 2001 there was the K-10 market crisis followed by the Unit Trust of India (UTI) scam, the next year. The Indian stock market’s credibility was at its nadir. It seemed impossible to expect any sustained period of activity in the market that would not be punctuated by a crisis. The 2000s was a painful decade for the markets that included the Black Monday episode on May 17, 2004; the almost imposed ban on forward trading in the commodity markets in 2007 and repeated disturbances over Participatory Notes from the foreign investors.

However, – and this is crucial – the reforms began by the finance ministry has over two decades made the same stock market rank seventh globally with a market cap of $2.1 trillion. More importantly, its functioning is now predictable, rule-based and offers scant chance of major disruptions. It is what reforms are supposed to deliver.

There are plenty of reasons why the markets reached here. One of them surely is the sustained eco-system of mandarins and outside experts in capital markets built by successive regimes at the finance ministry. Consequently, they could carry out far reaching changes like de-mutualisation of the exchanges to cleave the brokers out of their management; the dematerialisation of shares and wholesale weeding out of rogue companies from the list of market participants; the establishment of deep pensions and insurance markets. The opposition to each step has reduced over the years as the eco-system spoke in unison in support of the changes. So, the latest one, the co-location investigation at the NSE has hardly ruffled the broader market.

One may cavil at the preponderance of IAS officers in the administrative mix – except one chairman at Sebi (GN Bajpai), all of them are from this service. But each has played his role (sadly no women in the league so far) to bring the markets to where they are today. Amid the rush of bad news from other financial sectors like banking and in the same period, this is a remarkable achievement.

The telecom sector has essayed an exactly opposite journey in the same time frame. The scope of the sector has expanded massively. But almost each new rule brought in by the telecom ministry or Sebi’s equivalent, the Telecom Regulatory Authority (Trai) of India, has progressively raised the extent of disruption in the sector. After the NTP, the introduction of dual license regime in 2002 got the older telecom and the new companies get into their first clash. The changing of rules in 2008 to allow in another set of companies to bid for spectrum at rock bottom prices played out as the 2G scam. The Supreme Court had to intervene to cancel those allocations. The consequent auction of spectrum, the entry of Reliance Jio in 2017 and now the October 2019 ruling on the adjusted gross revenue (AGR) dues has carried forward the trend.

Today, unlike Sinha or M Damodaran. to name just two of those who have guided the reforms in the stock markets, there are no comparable names in the telecom markets to offer sage advice and solutions for any of the telecom crises. Successive telecom mandarins at the department of telecom or at Trai have made no effort to build up such an ecosystem. New iterations of telecom policies have often sought to pin the blame on predecessors instead of positing them as a chain in the development of the sector.

So almost every notable mandarin or sector expert is identified with one or the other squabbling parties. Yet as we noted earlier, the escalation of the crisis in the telecom sector compared with the de-escalation of crisis in the stock market in exactly the same time frame of two decades took place in the same economy, within the same political ecosystem. What gives?

This inability to develop an ecosystem of experts and the willingness to listen to their advice is one of the biggest drawbacks of the telecom sector today. It will be impossible for telecom minister Ravi Shankar Prasad to appoint a committee for the sector whose members would draw support from most segments. This makes it difficult for anyone to claim that the series of developments in the past two decades offer any evidence of systemic reforms. Whereas, there has been!

In the absence of such a coherent body of voices to articulate this position, it is impossible to disabuse the notion, that any proposed law or policy is meant to favour a party or the other. This has costs. Vodafone-Idea has apparently sought government support to pay only a part of their AGR dues. Minister Prasad has to take a view on it. Without a seemingly impartial eco-system, it is difficult for him to take positions which will not be contested. Each of those contests hurts the 1.3 billion Indians who Digital India is supposed to benefit.

(The writer is a business journalist and can be reached at s.bhattacharjee@ris.org.in)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH)

ADVERTISEMENT
(Published 20 January 2020, 10:09 IST)

Follow us on

ADVERTISEMENT
ADVERTISEMENT