Signals of revival
Telecom sector faces the risks of a duopoly
The Supreme Court verdict dismissing the petition of telecom companies regarding the adjusted gross revenue (AGR) calculation has made things tougher for Vodafone Idea. The cash-strapped telco was looking to save close to ~30,000 crore if the claimed errors in calculating the AGR dues had been corrected. With this cushion gone, the telecom industry is at the risk of turning into a duopoly. As British telco Vodafone Plc has made it clear that it won’t throw good money after bad, the survival of its India joint venture will critically depend on its fund-raising ability, relief in terms of deferred payments of statutory dues such as spectrum fees, review of the 5G reserve price, and breaking away from the low-tariff huddle.
While rejecting the telecom firms’ plea on recomputing the AGR dues, the apex court said it was a last-ditch bid by the industry to obtain some relief. Calling it a misconceived plea, the court said the companies sought to mitigate the impact of the previous judgment that had directed them to pay AGR dues of over ~1.9 trillion to the government over a period of 10 years. While the verdict may not have left any options for further legal remedy on the matter, a lot still depends on the government, the telecom regulator, and the telecom operators themselves if what was once a vibrant sector were to be prevented from turning into a duopoly. A disruptive tariff structure unleashed after Reliance Jio’s entry a few years ago left many telcos bleeding, and Vodafone Idea was the worst-hit. It got stuck with an accumulated debt of around ~1.8 trillion. The tariff structure needs to be corrected urgently, not just to ensure that Vodafone Idea remains a going concern but to make telecom a robust sector all over again. Even as telcos have bitten the bullet by tweaking tariffs and family packs for a start, more will need to be done. However, the challenge is that telcos cannot raise prices unilaterally, given the competitive environment. But the recent decision of Airtel to raise tariffs on its post-paid services augurs well for the industry’s attempt at shoring up its revenues and preventing a race to the bottom.
Fund-raising is another area where telcos have made an effort. By giving an in-principle approval for Vodafone Idea to raise up to ~15,000 crore through the foreign direct investment route, the government has paved the way for fresh fund infusion by the telco. The other major telcos — Bharti Airtel and Reliance Jio — have already raised substantial funds and are investing. The government can also help further by staggering the payment schedule more for the spectrum fee instalments. This should be extended to all telcos and not just to Vodafone Idea, which has approached the government seeking to pay ~8,292 crore of spectrum dues in April 2023 instead of in April 2022. Furthermore, since some of the earlier rounds of spectrum auction resulted in either telcos buying at exorbitant rates, or expensive airwaves remaining unsold, the government would do well to see that 5G spectrum is priced reasonably. For an industry that powers much of the country’s digital initiatives and has the potential to bridge the rural-urban divide, along with increasing overall productivity, right pricing of spectrum will go a long way. It is important to note that the quality of service of the telcos will depend on their financial health, which will determine investment in new technologies and efficient running of operations. Besides, the exit of an international corporation such as Vodafone will be a wrong signal for investors, both overseas and domestic.