Vaishnaw Gets It: Telecom Cannot Be Just A Milch Cow For The Government

For perhaps the first time since Arun Shourie implemented the New Telecom Policy 20 years ago, we have a Communications Minister in Ashwini Vaishnaw who seems to understand what the telecom sector really needs. Already, he has announced one round of reforms which will keep near-dead ducks like Vodafone Idea afloat for a while.

But Vaishnaw knows that it is not just about keeping one company alive; it is about making a sector that is so crucial to the Indian economy fit and healthy.

In a recent interview to The Economic Times, Vaishnaw not only promised to do “whatever is needed” to make the sector healthy, but pointed out that the sector cannot be only about maximising government revenues.

He said: “The telecom sector has the elements of revenue maximisation as well as public good. Covid has highlighted the significance of telecom services as a public good. Since there is an element of public good, we must formulate policy according to that.”

He could have gone further and said that the public good aspect of telecom weighs more than its immediate revenue potential, but he seemed to hint at that indirectly.

When asked whether spectrum should stop being auctioned (in order to get prices down), he said auctions are needed, but the real question is “how” this auction should be conducted, and what the terms of payment will be. Clearly, he is distancing himself from past telecom policies and the Supreme Court judgement in the adjusted gross revenues (AGR) case, which soaked the telcos for thousands of crores.

Vaishnaw added: “The entire issue of penalty, interest on penalty, and compounding monthly were not in tune with the time.”

In saying so, Vaishnaw is effectively going back to basics: that telecom and spectrum policy must follow a public purpose and not become an instrument merely for raising revenues for government.

It is worth recalling the history of telecom policy since the sector was thrown open to the private sector in the early 1990s under the P V Narasimha Rao government. Bids were sought for various telecom circles, and massive amounts – in tens of thousands of crores – were bid by operators who had no way to meet their obligations. But even after some changes were made to the policy, tele-density failed to take off, as mobile phone call rates were as high as Rs 32 per minute. This was what created the missed-call culture in India, since once a call was picked up, the caller would have to pick up a hefty bill as well.

In 1999, Jaswant Singh formulated the New Telecom Policy to rationalise licence fees and foster competition. Under Communications Minister Arun Shourie, the first market-determined spectrum price was declared and new licensees were invited to start ventures on a first-come-first-served (FCFS) basis.

But after the Vajpayee government bowed out in 2004, the weak UPA (United Progressive Alliance) government under Manmohan Singh effectively mortgaged the telecom policy to Dravida Munnetra Kazhagam's (DMK’s) ministers, first Dayanidhi Maran and then Andimuthu Raja. The latter subverted the FCFS policy, allegedly to help cronies, by selling spectrum in 2008 at prices determined in 2001 by Shourie.

This is what led to the telecom scam, as telcos who got “low-cost” spectrum along with their licences immediately got huge valuations for their companies. While Raja resigned and was jailed after the stuff hit the fan (he was ultimately let off due to the weak case mounted against him), his successor Kapil Sibal claimed there was no loss to the exchequer due to the under-pricing of spectrum.

Sibal was right in theory, but wrong on facts. It is true that government can, for policy reasons, sell spectrum at any price, even give it free, and the Rs 1.76 lakh crore “presumptive losses” calculated by an over-enthusiastic Comptroller and Auditor General (CAG) was as extreme assessment.

Sibal would have been right if two things had been done by the Manmohan Singh government before giving away spectrum at 2001 prices. One, the telecom ministry should have made a simple case whereby lost revenue was counter-balanced by social benefits due to lower telecom tariffs. If the public benefits of a lower spectrum price had been quantified or even broadly estimated, Sibal’s zero-loss theory would have been seen as a social “gain” story. Two, the process of giving spectrum should have been transparent and some price adjustment for inflation and higher demand would have made it rational. But the UPA government did neither.

What Vaishnaw is doing now is laying the groundwork for a more rational policy by emphasising that revenue considerations must be balanced with the need for promoting public good.

This is what Shourie would have done. But we got Raja in the interregnum, and we got a scam. The net result of the scam was that future spectrum auctions were seen more as revenue-raising measures, never mind what happened to the industry’s solvency. Both politicians and bureaucrats were unwilling to be seen as keeping prices reasonable for fear of being accused of Raja-like corruption.

Ashwini is heading in the right direction. As someone who has worked both in the bureaucracy (he joined the IAS in 1994) and later in the private sector after a Wharton MBA, he knows what needs to be done. He is an inspired choice for the telecom ministry.