Introduction
The telecom sector in India is facing a very serious crisis that will have major repercussions for the telecom industry as a whole, besides adversely affecting the economy, jobs and provision of telecom services to the subscribers.
The crisis stems from the different interpretations of the definition of Adjusted Gross Revenue (AGR) by the Department of Telecommunication (DoT) and the telecom companies (telecos), which has led to different calculations of the dues out by these telecos to the government.
According to the Department of Telecommunications (DoT), which issues the licences and allots spectrum, the three major telcos, namely, Bharti Airtel, Vodafone Idea and Tata Teleservices owe the government Rs 35,600 crore, Rs 53,038 crore and about Rs 14,000 crore, respectively.
Another major operator, Reliance Jio, entered the market only in 2016 and hence has much lesser amount, about Rs 195 crores due to the government.
The Supreme Court, on 17 February 2020, ordered these companies to immediately pay up the revenue share of the government failing which the bank-guarantees that were taken by the DoT while allotting licence to these companies will be invoked.
The same will lead to these companies, especially Vodafone going bankrupt and pulling out of India, leaving 30,000 Vodafone subscribers in the lurch and about 13,000 employees going jobless.
Furthermore, since only two major private players will be left to provide telecom services in India, namely, Bharti Airtel and Reliance Jio, they may not be able to handle the load efficiently, can arm-twist the customers and the effective cost for the end users will go up phenomenally.
What Led to the Crisis?
Liberalization of the telcom sector under the National Telecom Policy in 1994 allowed the entry of private players into this sector that encouraged a number of domestic and foreign companies to jump into the fray.
Initially, the DoT allotted these firms spectrum for a fixed licence fee, so as to offer both wireless and wireline services in India (including licences to Internet Service Providers (ISPs) and licences to provide passive infrastructure, such as towers and fibre).
In 1999, the NDA government gave licensees the option to migrate to the revenue-sharing fee model, which meant that rather than a fixed licence fee, the telecom operators were asked to share a percentage of their gross revenue with the government as annual licence fee and spectrum usage charges.
This is where the real trouble began, because of the difference in the interpretation of the definition of Adjusted Gross Revenue (AGR).
According to Clause 19.1 of the Draft Licence Agreement, gross revenue included installation charges, revenue on account of interest, dividend, value-added services and so on. Calculated on this basis, AGR excluded certain charges, such as the Interconnection Usage Charge (IUC) and roaming revenues that are passed on to other operators.
The basic difference in the interpretation of the AGR clause is that while the telecom operators want that they should be charged only on the basis of their core business, which is primarily the usage of spectrum allotted to them, whereas, the contention of DoT is that the definition of AGR includes other items, such as dividend, interest, capital gains on sales of assets and securities and gains from foreign exchange fluctuations.
In other words, the operators do not want the non-operational income to be included while computing the AGR.
However, when the government did not pay heed to their request, the operators approached the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in the year 2002-2003.
A long legal battle ensued and in 2015, the TDSAT ruled that AGR includes all receipts except capital receipts and revenue from non-core sources. However, on 24 October 2019, the Supreme Court set aside that order and upheld the DoT’s definition of AGR.
The said telecos approached the court for a review, but their plea was rejected on 16 January 2020.
As a result of this long drawn legal battle, the original disputed amount of about Rs 23,000 crore snowballed to the present figure of close to Rs 1.5 lakh crore as the DoT contended that the entire dues accumulated over the past 15 years be paid with interest and penalty.
Lastly, an ongoing price war between various telecom operators and the launch of Reliance Jio in 2016 has ringed the sector hollow. Jio started offering data at 1/10th of the competitor’s price, which led to hordes of subscribers to port to Jio and competing players went scrambling to prevent this exodus. The ‘predatory pricing’ by Reliance Jio has surely contributed to this crisis in some ways.
Implications of Telecom Sector Crisis
Vodafone Idea and BSNL-MTNL are hurtling towards an eventual shutdown, which might as well be an abrupt collapse if they are forced to pay up the due as per the Supreme Court order.
Government has recently encouraged nearly 92,700 employees of BSNL and MTNL to opt for voluntary retirement to save about Rs 8,800 crore annually in salary bills for the debt-laden telecom companies.
Similarly, Vodafone Idea, which is the country’s second largest telco in terms of subscribers, is already sitting on the edge of bankruptcy. If it pulls out of India and also BSNL collapses, the fate of nearly 40,000 subscribers will be jeopardized in terms of continuous availability of telecom services and also for competitiveness in the industry itself.
The telecom industry serves as the backbone for digital economy, which runs on the mobile services infrastructure. Any disruption in the telecom services will have serious repercussions for the digital economy and may lead to curb in foreign investments in India.
It may be understood that the Indian telecom business (both voice and data) is headed towards becoming a duopoly (Reliance Jio and Bharti Airtel). The same is likely to spell disaster for the telecom industry as these companies can hold the subscribers to ransom and charge them at will.
Lastly, besides the likely disruption in provision of continuous telecom services in India, the crisis is bound to increase the tariff rates for the subscribers and will result in massive job losses when the telecom industry has a shutdown of its major players.
Conclusion
It is extremely unfortunate that India is witnessing this crisis when the political masters of the country are talking about proliferation of digitalization and promotion of ease of doing business in India to draw foreign investments.
I sincerely hope that the government takes timely proactive steps to not allow the situation to aggravate beyond a point from where recovery and revival of the telecom industry and its ancillary sectors becomes untenable.