Saving the telecom sector

The telecom industry is under severe stress — evident in the second quarter results of the two leading players. While Vodafone Idea has posted the biggest loss that corporate India has ever seen in a quarter, for Bharti Airtel the loss was the highest in its 24-year history. Together, the two top telcos’ July-September quarter net loss ballooned to Rs 74,000 crore due to the provisioning they had to make for the adjusted gross revenue (AGR) dues. According to a recent Supreme Court judgment upholding the government definition of AGR, telecom service providers must pay up their past dues on licence fee as well as on spectrum usage charge (SUC) by the end of January 2020. The Department of Telecommunications (DoT) has asked all service providers to calculate their respective dues and pay up in three months as directed by the apex court. Estimates suggest a total payout of around Rs 1.33 trillion by telcos, including by those who have been acquired or gone out of business.

As both Bharti Airtel and Vodafone Idea have raised doubts over continuing as “going concerns” in the backdrop of huge losses, piling debt, and pending AGR dues, the government has to step in fast. Union Finance Minister Nirmala Sitharaman has shown the way by saying that she doesn’t want any telecom firm to shut down and would like each of them to flourish. That should translate into concrete action soon. 

Without any relief from the government, British telecom major Vodafone may decide to exit the India market. This would adversely impact the overall business sentiment, especially the foreign investment climate. The company has been among the biggest sources of foreign direct investment for India. Vodafone Chief Executive Nick Read told the media last week that “if you’re not a going concern, you’re moving into a liquidation scenario — can’t get any clearer than that’’, while blaming the regulatory environment for much of the woes. Subsequently, he wrote to Prime Minister Narendra Modi, saying he was quoted out of context and that Vodafone wanted to stay invested in India. However, the numbers tell the real story, and indeed the road ahead for not just Vodafone but the entire telecom industry hinges on a potential relief from the government. So far, the indications are that the government may lower the licence fee and also give a moratorium on paying spectrum charges. The industry expects the option of a long-term staggered payment of the AGR dues, besides a waiver on penalties and interests. Although it may be a challenge for the government, facing a revenue shortfall, to allow such concessions to telcos, not doing anything is no longer an option.

It is correct that the incumbent telcos in the past indulged in high bidding during spectrum auctions, hitting their bottom line. Pricing by competition pulled them down further, leading to a situation where only two private telcos may remain with only one holding on as a strong player. It is equally true that the telcos failed miserably in providing for the potential liability in their balance sheet over the years. But to prevent a near monopolistic situation, further job losses, and erosion of business confidence, the government, which appropriates about a third of the revenues of each player through various levies and taxes, must act.

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