Telcos pin hope on top panel to ensure sector viability
THE CRISIS TODAY NEEDS A STEP AS REVOLUTIONARY AS THE ONE THAT THE GOVERNMENT HAD TAKEN 20 YEARS AGO
NEW DELHI: The telecom sector in India has always been a war zone but the latest battle is set to leave scars not just on struggling operators but also on every other stakeholder in the ecosystem, including the government, investors, consumers, and equipment makers.
In this two-part series, Mint will chronicle the two crises that the telecom sector has witnessed, in 1999 and 2019, and the impact of government intervention in getting the sector out of the challenging environment 20 years ago and the need for a relief package today.
In 1999, the dynamics of the telecom sector were very different. There were 400,000 cellular subscribers at the end of 1998. Teledensity was poor. Tariffs were high. The government auctioned the licence and not the spectrum. The fixed license fee payable by operators was very high and resulted in them consistently defaulting in payments. Investors were nervous and the sector was crying for intervention.
Fortunately, the government at that time was commercially savvy, understood the inner workings of the industry and brought about a new policy in 1999. What the government then presented to operators was a migration package under which operators would share a percentage of the revenue with the government. In effect, the government became a stakeholder in the business. A miraculous change came about in the fortunes of the sector. Cash flows of operators improved as the liability on their books came down.
“It was as much a policy change as it was a settlement. There was give and take on both sides and all litigation was withdrawn. As a result, the government also got a piece of the bargain as it did not have to worry about court cases anymore,” said Mahesh Uppal, director at communications consulting firm Comfirst India.
The telecom sector saw gross revenue soar from ₹4,855 crore in 2004 to ₹2,24,430 crore in 2014. As a result, the government’s share of the revenue also grew and it deployed this for creating infrastructure in villages. Healthy operators meant that investor sentiment also got a much needed boost. Money, from domestic and foreign sources flowed into telecom companies and this helped mobile services proliferate.
There were just 2.6 million cellular subscribers in the country in 2000. Eight years later, this number shot up to 261.08 million. Today, India has more than a billion subscribers. The internet economy has emerged on the back of these factors.
That is precisely why the crisis today needs a step as revolutionary as the one that the government had taken 20 years ago. The country has just three private sector operators left, Jio, Airtel and Vodafone Idea.
In what marked the end of a 14-year-long legal tussle between the department of telecommunications (DOT) and operators, the Supreme Court last month upheld the government’s broader definition of revenue on which it calculates levies on telecom operators. The court rejected the definition of adjusted gross revenue proposed by telecom companies, which excluded revenue from non-core operations such as rent, dividend and interest income.
The top court’s verdict, incumbent operators believe, will be the last straw that breaks the camel’s back. Telecom companies will now have to pay the government more than ₹92,000 crore in unpaid spectrum and licence fee dues that have accrued over these years. “In a cruel twist of fate, the two companies that survived the competitive intensity post Jio’s entry and the consolidation that followed in the three years have effectively been penalised by the verdict on AGR. No one will knock on the doors of companies that shut shop but owed money to the government,” a senior industry executive said requesting anonymity.
Bharti Airtel’s dues will be upwards of ₹21,682 crore while Vodafone Idea will need to cough up at least ₹28,309 crore. In contrast, Jio’s dues are just ₹13 crore. Aircel and Reliance Communications are bankrupt and the Tatas have sold their business to Airtel.
The Centre has set up a committee of secretaries under the cabinet secretary to suggest measures to alleviate the financial stress in the telecom sector and look at ways of creating a favourable investment environment. The suggestions made by the panel to the government will be crucial and may effectively change the sector’s dynamics, consumer choice, investor sentiment, and India’s image as a place to do business.