Millennium Post
Opinion

India's telecom despair

Airtel and Vodafone’s financial crisis portends a detrimental impact on telecom industry

No country in the world is known to have witnessed such a messy situation with its vital telecom industry as India. In the last 10 years, 16 telecom operators, most of them with foreign links, had to shut down Indian operations. Of them, as many as 11 are since the NDA government came to power in 2014. The country is now left with five main operators. And, only one of them, Reliance Jio, a new entrant, is making a profit. Jio is not an independent corporate entity. It is part of the country's corporate behemoth Reliance Industries (RIL). On the contrary, the government has been the sole beneficiary of its telecom policy adhocism — from foreign direct investments, licence fees, revenue share, income of billions of dollars from spectrum auctions, among others. The government's organisational style was characterised by aversion to planning, tendency to respond only to the urgent, as opposed to the important, issues and focus on 'fire fighting' rather than on establishing systems and procedures through goal-setting and long term planning to benefit both consumers and industry, inviting corruption. The Telecom Regulatory Authority (TRAI) had failed to bring life to the bleeding industry and protect confused consumers.

The latest financial crisis involving the country's two major operators – Vodafone Idea and Bharti Airtel – may portend evil for the entire telecom industry and consumers. If these two companies are also forced to shut down, the market will be nearly monopolised by newcomer Reliance Jio, part of Mukesh Ambani's Rs 6,23,800-crore RIL. Vodafone-Idea's Q2 (July-September) loss stood at Rs 50,922 crore, setting a record across industries in the country. Bharti Airtel lost Rs 23,045 crore during this period. Their losses are said to be mainly on account of the brutal price war unleashed by Reliance Jio. The latter was commercially launched only in September 2016. Within three years, R-Jio became India's largest mobile network operator and the third-largest in the world with nearly 400 million subscribers. This is unthinkable. Interestingly, the other Ambani brother, Anil's Reliance Telecom (R-Com), which lost over Rs 30,000 crore in the second quarter, is already out of business and facing bankruptcy proceedings. Only three years ago, R-Com was India's fourth-largest telecom operator. In February 2019, the company filed for bankruptcy as it was unable to sell assets to repay its debt. It had an estimated debt of Rs 50,000 crore against assets worth only Rs 18,000 crore. Now, the fortunes of Vodafone India and Bharti Airtel, both carrying massive losses, hang in balance despite some government assistance to "address concerns of telcos".

Truly speaking, the government, which collected huge licence fees, revenue share and proceeds from bandwidth auctions from mobile telephone service operators since it was first open in 2000, is principally responsible for the plight of operators. Did the government do a proper study about how the industry operates around the world before giving licences to so many operators? The USA has mainly four operators, including AT&T Mobility, Verizon and T Mobile. Japan has three — NTT DoCoMo, KDDI and Softbank Mobile. Germany has five, including Telecom Deutschland, Vodafone and Telefonica. China, the world's largest mobile telephony market, has only three service providers — all state-owned enterprises. China's biggest telecom service provider, China Mobile is also the world's largest operator with over 850 million subscribers. Since 2000, when India first experimented with cellphone service, as many as two dozen telecom operators were given licence to operate. Some16 of them became defunct. Several sold licences and bandwidth. And, most others, including two government operators, BSNL and MTNL, heavily burnt their fingers after making large investments. The defunct telecom operators include Modi Telstra, the first one with Australian tie-up to enter the Indian market, Usha Martin Telecom, Essar, Hutch, Axiata Spice, S-Tel, Etisalat, Loop Mobile, Virgin Mobile, Videocon, MTS India, Idea Cellular, Aircel, Telenor India, Tata Docomo and R-Com.

The authorities, which, for unknown reasons, blindly supported Reliance Jio's initial market destabilising price offers to quickly create a big customer base, are largely responsible for the hopeless situation in the telecom industry. Other operators had constantly complained without any positive response from authorities. Within a very brief spell of operation, Jio has emerged as No 1 player in the business, setting a global record. And, the government now seems to be ready to right the wrong, after the last July-September losses of listed telcos topped the Rs 1,00,000 crore mark. Last week, the government, seemingly embarrassed by media reports of the Q2 losses of listed telcos, announced a two-year moratorium on payment of spectrum dues, amounting Rs 42,000 crore. Something is better than nothing. Reportedly, the moratorium will also benefit profit-making Reliance Jio to the tune of Rs 6,670 crore. However, there is no relief on the Rs 1.47 lakh crore adjusted gross revenue demand arising from a recent Supreme Court judgement.

Meanwhile, having achieved its business objective through a mid-term price war to shake up the market and unsettle its established rivals, Reliance Jio has joined hands with Airtel and Vodafone Idea to announce a price increase soon. Airtel and Vodafone Idea said they would raise tariffs from December. Interestingly, TRAI itself is said to be initiating a consultation process for revision of telecom tariffs. One wonders why the authorities want to act now, after allowing Jio's rivals to make huge losses. According to TRAI data, Vodafone Idea and Bharti Airtel lost nearly 50 lakh users last September while Reliance Jio added almost 70 lakh users. Ironically, the country's telecom industry has been a major source of corruption – political and financial – that forced a former telecom minister, Dayanidhi Maran, to resign, sent yet another former telecom minister, Andimuthu Raja, to jail and, currently, made a former union finance minister, Palaniappan Chidambaram, cool his heels under custody in Aircel-Maxis case.

Views expressed are strictly personal

Next Story
Share it