“Nothing ... will ever be attempted, if all possible objections must be first overcome”, said the inimitable and oft-quoted literary titan of the 18th century, Samuel Johnson. The adage is not farther from the truth for the Indian telecom sector.
Clarity on impeding regulatory issues towards the closing months of 2013 instilled traces of optimism and hope for the revival of the sector in 2014. Reduction in the spectrum base price, clarity on M&A norms and relaxation of FDI limits to 100% were the key policy moves which induced that cautious confidence. The year 2014 was touted as the year for renewal, restoration and recovery. With the spectrum auction on the anvil and expectation of positive reforms, viz. the formation of a new government at the centre, the sector had just gathered that initial momentum.
In this sentiment of tangential hope, the emergence of the lurking issue of spectrum usage charge (SUC) has jerked the buoyancy and built yet another impasse. As a result there is a further withering away of the already atrophied market sentiment. At a juncture, where operators and the government were expected to be preparing for the crucial spectrum auctions, the focus has shifted towards deliberations on an appropriate SUC—a charge whose raison d’ etre in itself is debatable and needs a careful rethink and a possible overhaul.
SUC forms a significant net outgo for the operators and the industry is fretting over the final regulatory outcome on the issue. Take a note—spectrum fees paid by operators in India amounted to a whopping R51.9 billion in FY12 and is expected to add up to R73 billion for FY13. This is over and above the high pay-outs in form of license fees charged from operators which, at 8% of the Adjusted Gross Revenue (AGR), is one of the highest in the world (amounting to R113.3 billion estimated for FY13 alone).
Unfortunately, the India telecom sector faces one of the world’s highest net outlays in form of regulatory costs including—but not limited to—service tax, state level VAT, spectrum charges and license fees (other charges include additional duty of customs (ADC), central sales tax, municipal charges, right of way, etc). Basically, in FY12, spectrum fees and license fees (the two of the largest regulatory pay-outs) together accounted for a massive 73.1% of the sector’s ebitda (R232.2 billion) while in FY11, the figure stood high at 59.7% of the ebitda (R232.6