India’s telecom sector, the world’s cheapest and fastest-growing market, is facing an existential crisis as it is being run at a loss of billions of dollars. This crisis can change the character of the industry. Many operators have already exited the market due to the stiff competition in prices.
The Supreme Court order to include non-core revenue in telecom groups’ non-adjusted revenue, which is levied as part of the tariff, has revived the rivalry between Mukesh Ambani’s low-cost Reliance Jio and Airtel in the year that is about to end, but there are signs of a patch-up as rival camps have agreed to increase tariffs in favour of a regulatory intervention that would fix the floor or minimum tariff. “We have basically gone from all (mobile) voice (calling) networks to hybrid networks (voice and internet data) networks,” said Rajan Mathews, director-general of the Cellular Operators Association of India. COAI).
To survive, the Telecom Regulatory Authority of India (TRAI) must fix the minimum price before March 2020, Mathews says.
With 1 gigabyte (GB) of mobile data costing just $ 0.26 as compared to $ 12.37 in the US and $ 6.66 in the UK, India emerged as the country with the cheapest telecom rates in the world in 2019. It is also the fastest-growing telecom market. However, beneath the surface, a price war had rocked the sector since the launch of Jio in 2016. When on 24 October the apex court, responding to a petition by the government, ordered to pay the previous dues as per its new definition of AGR, Vodafone-Idea Ltd, the country’s second-largest carrier, warned it might have to shut shop if not given relief.
The number of shocking losses led the telecommunications industry to do away with or refinance the “obsolete” system of AGR only in the best-case scenario.
The total dues the industry owes is Rs 1.47 lakh crore. For an industry that has come from a stage of seven or eight operators to just three private players and a fourth operator owned by the state, the warning by Vodafone-Idea is an SOS.
This year saw a recurrence of the bitter war between the old and new operators, and intense lobbying by telecom czar Sunil Bharti Mittal and Vodafone-Idea billionaire Kumar Mangalam Birla. Mittal and Birla had to bear the brunt of the brutal competition that Ambani introduced to the market, as Jio devoured their user bases and became the country’s largest operator in terms of customers. Airtel and Vodafone-Idea registered record financial losses but Jio continued to surprise the market with astonishing profits during the year.
Moving the government worked. It announced a two-year moratorium on spectrum payments for stressed telecom companies, as the sector worked to avoid becoming a monopoly, soon after the three operators signalled the end of the price war by raising tariffs.
Mittal lobbied the regulatory regulator for a floor tariff for the viability of the industry, an idea Jio had initially opposed on the grounds that it would strip the industry of the right to manage its products’ prices. But the TRAI quickly moved a draft consultation paper to fix the base price.
COAI wants the regulator to apply the floor prices to data as well, if possible before March. It says that the investors need such safeguards in a mature mobile market.
The industry now hopes the regulator fixes the floor price to end the continued bleeding of players. It has urged the finance ministry to cut it significantly to give the industry a fighting chance.
The industry body is optimistic that the recent increase in tariffs will not reduce data consumption; The data appetite will increase as more and more Indians transact online, buy clothes and indulge in online shopping and simply double-watch the latest shows on video-streaming platforms. Greater speed and smartphones will aid in this process, it says. ” Still, the floor price is certainly needed to bring certain discipline back into the marketplace. We have fundamentally gone from an all voice network to a hybrid network, to soon an all data network. In a voice network, the de facto floor was the interconnect charge, question is, in the new world of data what should it be,” says Mathews.
Mittal, whose company is in the midst of raising $ 3 billion in funds to help pay the AGR dues, has sought TRAI’s immediate intervention in the telecom sector, saying, ” We are unnecessarily killing this industry in a manner and way that is not conducive.” He underscored the need for a balance between investment and protecting consumer interests. Airtel reported a net loss of Rs 23,045 crore for the second quarter that ended on 30 September due to a provision of Rs 28,450 crore following the apex court’s verdict on the statutory dues.
Both Airtel and Vodafone Idea have petitioned the government for relief in interest and a penalty waiver, which will stop the arrears. They have filed a review petition in the Supreme Court.
The private sector’s fall this year, however, brought better economic management to state-owned telecom companies MTNL and BSNL. The government recently approved a revival package of Rs 69,000 crore for two telecoms which were in the news for the delay in payment of salaries for the most part of the year. The revival package involves merging two loss-making firms, monetising their assets and granting VRS to employees so that the combined entity becomes profitable in two years. Around 92,700 employees of BSNL and MTNL have opted for voluntary retirement, which is expected to save about Rs 8,800 crore annually in salary bills of debt-ridden telecom companies.