The telecom mess

As the countdown has begun for the worst phase so far for the telecom industry, the government’s inaction is surprising. And there is no sign that anybody is listening to the industry that has enjoyed star status in attracting money and talent ever since India got hooked to mobile telephony. Along with reports of fire sales and shutdown of telecom companies, the fear of significant job losses in an already slowing economy is becoming real. Estimates put direct job losses at telecom companies at 35,000, of which a few thousand employees have already been handed pink slip as firms seek consolidation in the midst of intense competition and a debt pile of over Rs 4 lakh crore, prompting four of the largest public sector banks to publicly express concerns about the financial health of the sector. If indirect employment is counted, more than 100,000 are at risk of losing their jobs because of the financial mess in the telecom industry. That surely is a worrying development at a time when the country is struggling to create enough jobs for its young people. 

The government had a chance of salvaging the situation, but it has let it slip. The inter-ministerial group (IMG) formed to address the concerns of the industry held several rounds of discussions. But the final recommendation that has been accepted by the Telecom Commission is insufficient. On offer is a longer tenure — 16 years instead of 10 years earlier — to repay the spectrum cost and an easier interest rate regime. The industry rightly believes this is too little to lift it out of crisis, and cites a wish list that includes lower spectrum charges and revenue fee, faster clearances for network roll-out and mergers, an improved interest rate regime, and a regulatory environment that encourages fair play. 

The industry is yet to recover from its disappointment when the regulator, Telecom Regulatory Authority of India, recently slashed interconnection usage charges for calls terminating on another network by more than half. The signal from the government has been that it is maintaining an arm’s length distance from the telecom industry. While that is not a bad idea in itself, the industry now requires a bit of hand-holding. In 2008, 122 new 2G licences were granted to companies from diverse industries, including real estate and hospitality, on a first-come, first-served basis at the 2001 price, resulting in more than a dozen telecom companies at one point. While that was a lopsided number, the current crisis is fast leading to a situation where only three private players — Bharti Airtel, the Vodafone-Idea combine and Reliance Jio — have a realistic chance of surviving, even though the first two have been facing declining profitability.

This is not really a good development in terms of creating a competitive marketplace for telecom services. In any case, a telecom industry in distress is not good for the government’s finances either. The revenue that telecom companies share with the government is fast depleting. In a telling signal, the department of telecommunications informed the finance ministry recently that it would be difficult to meet its revenue target of Rs 47,305 crore for 2017-18 and sought a revised target of Rs 29,524 crore, which is a 40 per cent cut. The government should step in before there is collateral damage.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel