The irruption into the marketplace of Reliance Jio has depressed earnings, profits and income for most of the players in India’s mobile telecoms ecosystem. That, in turn, has lowered the amounts that those companies will be paying the government for access to the spectrum. At which point our reaction really should be Oh Dear, How Sad. Yes, certainly, we like government to have revenues but that’s not the point of such spectrum charges at all. Rather, this is one of the few areas of life where we charge people on a moral basis. The telecoms companies did nothing to create the spectrum they use–that spectrum is, in the economic jargon, a natural resource. And people should not profit from the existence of a natural resource. On the very simple grounds that, as above, they did nothing to create it.
We’re absolutely overjoyed that people make money out of their use of a natural resource. That when they add capital and or labour to it this then produces something that consumers want. But it’s that addition which is where they should profit, not the existence of the resource in the first place. Such “resource rents” are rightly things which should be taxed away. This applies to the simple existence of oil in the ground for example. Humans might drill for it, refine it, transport it, even find it, but they didn’t create it. So it is with spectrum. We desire that government tax away, until the pips squeak, those resource rents, while still leaving room for people to profit from the value they add:
The Department of Telecommunications (DoT) has asked the finance ministry to slash the non-tax revenue targeted from the telecom industry for this fiscal year by over a third. Plunging tariffs due to promotional offers and the limited ability to invest in capital expenditure are set to erode telecom companies’ financials, which have already taken a hit in the past two quarters.
The promotional offers are of course the result of the new market entrant.
The development comes in the backdrop of the telecom industry facing one of its worst nightmares with hyper competition eating into revenues and margins, which the government and analysts fear is likely to continue and can severely impact the industry’s loan repayment commitments and other liabilities.
We should be honest here and state that we don’t, or at least, shouldn’t, care. So, the competition is so fierce that the producers can’t make a profit? Oh Dear, How Sad. We’re getting close, might even actually be in in fact, that free market nirvana where producers don’t in fact profit but consumers make out like bandits. Which is just great of course, that’s the whole point, that the consumer should be better off:
In the letter, the commission’s member (finance) Anuradha Mitra said that the non-tax revenue target for the department of telecommunications (DoT) may be revised to Rs29,524.15 crore from a projected Rs47,304.71 crore.
It said licence fee collections will fall from a projected Rs16,664 crore to Rs9,255 crore in 2017-18. It expects spectrum usage charge collection to be significantly lower at Rs4,970 crore. It also expects spectrum auction proceeds this fiscal year to be nil even as DoT has sought the telecom regulator’s views on the next round of spectrum auctions.
OK, so, government isn’t going to get much, if any, revenue from renting out that natural resource, the spectrum, to the telecoms operators. We can, in a limited manner, think this is a bad idea. At least some of the things which government does with the revenue it receives are useful–not all but some–and so less revenue might mean fewer useful things being done. But the reason we “tax” such spectrum, that is rent or sell it to operators, is not to gain revenue, that’s not the point. It’s to stop people making profits simply from the existence of a natural resource. And no one is making a profit from it, competition is already doing that for us, competing away that resource rent. Which is great, the market is already achieving our goal and the extra charge is no longer needed.
We charge for spectrum use to stop resource rents. If competition is already doing that we’ll miss the government revenue, of course, but the correct reaction is still Oh Dear, How Sad, for we’ve already achieved our goal.