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Telecom crisis is bad for the economy and consumers

By DM Deshpande

No other sector in India is in such a perennial crisis. Telecom has been in a state of limbo for over two decades. For a sector that was once defined as a shining sector and a show piece of economic reforms, it is hard to fathom how it has slid into deep crisis.

The industry has given the consumers one of the lowest prices for data, voice calls and other related services. Ironically, several players have exited after incurring huge losses; some others are lined up for bankruptcy proceedings. Bad policy, judicial delays, over estimation of market leading to high and unrealistic bidding and cut throat competition have led to the mess the industry finds itself in. At last, the Supreme Court has ordained that the telcos pay up Rs 92,000 crores as AGR (adjusted gross revenues).

Not too long ago, the government had envisioned four players in the Indian telecom space-Jio, Airtel, Vodafone-Idea and the public sector BSNL-MTNL. There are reports doing rounds for the last few months that Vodafone Idea is very likely to fold up because it has no money to pay Rs 53,039 crores dues. It has reported loss of more than Rs 50,000 crores for quarter ended September, wiping out the entire net worth of the company.

The Indian promoter Aditya Birla has to pitch in with Some Rs 19,000 crores. The foreign partner has already stated that it would not like to bring in fresh investment in the venture. So, if it does wind up, which seems likely now then it would not just be unfortunate but also catastrophic, well, at least of some magnitude.

If that happens, that will leave the vast Indian telecom market in the hands of just two private players, a case of duopoly. BSNL-MTNL are cash strapped public sector entities which are left with marginal market share, whether or not they merge in to one unit. Even assuming that Vodafone Idea somehow manages to pay off AGR dues, where it will pool resources to buy spectrum for 5 G later in less than a year.

Ditto is the case with Airtel. Though it is in a relatively better financial position than Vodafone, yet it will face stiff challenges to arrange funds for technological upgradation and for buying spectrum. As costs would go up, Airtel would find it easier in a duopoly market to raise prices; prices of services have been going up, albeit, slowly for quite some time now, much to the detriment of users.

Telecom industry in India has both a history and a legacy. After reforms were initiated and the sector was freed for private players, several players bid very high rates for buying license upfront. This proved to be their undoing and government came to their rescue to allow them to migrate from fixed license fee to a revenue sharing regime. TRAI would specify what kind of revenues would be sharable between the two. TRAI ordained that all kinds of gross revenues will have to be shared. This order was contested in 2003 by telecom players.

Since then all governments-Congress led and BJP led-have pursued licenser’s claim to share gross revenues. For them it was the fiscal deficit which could be narrowed by the funds it would get from telecom companies. Finally, in Oct 2019, Supreme Court verdict upheld the government’s claim pointing out that it was agreed to by the telcos in the contract. The verdict went by the letter of law but the players were surprised and hence went in for a review petition; that too was dismissed. Subsequently, they pleaded more time to pay up which has been turned down resulting in precipitating the current crisis.     

Telecom is too important a sector to be let down like this by the government. Digital India, payments, business, growth and even FDI flows would be impacted if the government choses inaction to policy intervention. Financially too it will stand to lose a large part of Rs 2,15,000 crores in outstanding dues. The best option for the government was to ask the court to review the order and allow it to negotiate the final settlement with telecom companies. After all, public sector banks are known to take big hair cuts-of 40 to 60 per cent of principal sum when the go to settle insolvency cases in courts.

Now the government can rescue the sector only by over ruling the verdict of the highest court. It has done in the past when it introduced retrospective tax amendment in Vodafone case. With so little being done, it is too much to expect that the government will go the whole hog to help the ailing sector. That is indeed a bad news for investors, banks, government itself and the consumers.

The author has four decades of experience in higher education teaching and research. He is the former first vice chancellor of ISBM University, Chhattisgarh.

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