The license conditions for telecom operators do not clearly specify when free trials should end and when commercial operations must begin. Reliance is using this loophole to expand its market to as much as possible.
Mukesh Ambani and Shah Rukh Khan at a Reliance Jio event. Credit: PTI
New Delhi: A game of hot potato between the Department of Telecommunications (DoT) and the Telecom Regulatory Authority of India (TRAI) over Reliance Jio’s controversial extended field trials may have caused losses to the exchequer, according to people with direct knowledge of the matter.
Losses caused to the exchequer had become the very basis of the anti corruption campaign in the last few years of the UPA II regime. One had thought the right lessons had been learnt following that episode. But public memory seems short, because recently the telecom operators wrote to the government asserting a persisting ambiguity in the telecom license agreement that has enabled Mukesh Ambani-owned Reliance Jio to grab close to three million customers over the past several months in the name of “running free trials” of its voice and data services.
Free trials do not fall under the normal regulations guiding commercial operations and does not even require the payment of necessary licence fees, spectrum usage charges and service tax. These together amount to nearly 25%-28% of the company’s revenues. which is paid to the government. According to experts, this is a clear loss to the exchequer, which has to forgo these taxes as long as Reliance’s free test trials continue.
The license conditions for telecom operators do not clearly specify when free trials should end and when commercial operations must begin. The telecom industry association has written to the prime minister’s office asking for a clear direction on this matter. In other words, had Reliance Jio been forced to launch commercially it would have come under normal regulation and paid various taxes – roughly amounting to 28% of the billing – due to the government. Reliance is using this loophole to expand its market to as much as possible.
For instance, if the telecom regulator or the government do not clarify as to how long test trials could continue before the formal commercial launch, Reliance Jio could potentially grab another four to five million customers without paying the requisite license fee and other taxes.
Interestingly, the government and the telecom regulator both are seized of this issue but have not been able to take a decision.
In June this year, according to people with knowledge of the matter, the TRAI had written to the telecom department asking for clarification on when exactly free trial run ends and commercial launch begins. The DoT did not respond to the TRAI query for two months and recently wrote back to the regulator asking it to lay down norms. The TRAI then wrote to the telecom department arguing this was in the domain of policy and therefore the government had to clarify the limits of free trial runs by a telecom service provider before a formal commercial launch. Finally, after several months of letters going back and forth, the DoT has decided to make a recommendation on when a commercial launch is to be done after free trial runs. Reliance Jio has already acquired over three million subscribers during this period of policy ambiguity.
Some experts, however, say the TRAI could have taken a decision on this matter suo motto instead of writing a letter to the government for clarification. They say no one wants to take a call on this because any file relating to the Mukesh Ambani group is seen as politically sensitive.
“What is very frustrating is that the telecom regulator did not take swift action. Reliance’s trial tests have been going on for the last few months without anybody stepping in and calling it for what it is, a full-fledged launch. Now, Mukesh is expected to announce the formal commercial launch later this week, thus letting him off the hook while giving Jio a cool 2.5-3 million customers,” said a senior executive of a telecom operator that has been lobbying aggressively with the Cellular Operators Association of India (COAI).
The COAI for its part has also written to the PMO – additional principal secretary Nripendra Mishra—on this matter. They, however, haven’t heard anything formally from him.