The October-December quarter is a festive period that offers big opportunities to both sellers and buyers. Companies seek to increase revenues and profits through higher volumes. Consumers look for hefty discounts and attractive deals. This wasn’t true, however, for the telecom sector this time. Saddled with huge dues due to a recent Supreme Court order, telecom players stare at a financial abyss that can cripple or bankrupt them. Mobile users can forget about the good old days when they were hooked to free or low-cost calls, text and data. The four major telecom firms—Airtel, Vodafone-Idea, Reliance Jio and the state-owned BSNL—will hike tariffs this December. They did it in 2018 too, but the increases this time will be higher.
Outlook learns that prices for voice and data may go up 10-25 per cent, though some reports suggest hikes as steep as 67 per cent for voice calls. In essence, it will unleash a transformation within the mobile segment. Companies will change their business models, while subscribers will have to change their usage patterns. It’s a matter of survival—one company is likely to declare insolvency if it is forced to pay past dues, another may be semi-paralysed, and a third may go from bad to worse. The fourth will remain unaffected—as the last entrant, its dues are minimal.
Saddled with huge losses—Vodafone-Idea’s Rs 51,000 crore and Airtel’s Rs 23,000 crore—and even higher debts (Rs 1.02 trillion and Rs 1.18 trillion, respectively), the telecom companies (telcos) have no option but to shore up incomes, and margins. “We will suitably increase our tariffs from December 1,” says a Vodafone-Idea representative. “Mobile data charges are by far the cheapest in India.” Analysis of the various tariff plans in India reveals that the lowest price for data is Rs 1.75/GB. According to a study by the UK-based cable.co.uk, the global average for mobile data is Rs 600/GB—more than 32 times the Indian figure. Rates in the UK and the US are 25 and 47 times higher, respectively.
Add to the above woes future investment commitments that are imperative. One, Vodafone-Idea and Airtel have to pay a cumulative Rs 83,000 crore as past dues, as per the Supreme Court order, by January 24, 2020. The government gave them a two-year moratorium to postpone the annual payments for this and next year. But this will only provide temporary relief and, according to the cellular operators, postpone the inevitable by 24 months. Two, the telcos need huge sums in their kitties to successfully bid for the forthcoming 5G auctions to remain in the mobile game.
Finally, as users regularly complain, the quality of services is abysmal. To “ensure that its customers continue to enjoy world-class digital experiences”, as aptly put by the Vodafone-Idea representative, fresh investments are required in infrastructure. “Indian mobile tariffs have to go up 5-10 per cent every year,” says Sam Pitroda, father of Indian telecom. If this is true, the telcos will need to rejig their business models—may be, chase value rather than volumes, as they did in the past two decades. With mobile penetration quite deep, this may be the time to focus on profit margins, rather than the top-lines.
Mobile firms, especially Vodafone-Idea and Airtel, also insist on policy changes. The Cellular Operators Association of India (COAI) has urged the government to address the anomalies related to the existing policy of revenue share, which formed the main contention in the apex court. According to this, telcos need to pay a percentage of their annual revenues as licence fees and spectrum usage charges (SUC).
COAI opposes this on two counts. It contends that SUC has become irrelevant after spectrum auctions, which forces the companies to pay upfront huge sums for the spectrum. Two, the apex court included non-licensed revenues such as dividends and capital gains as part of the revenues to calculate the percentages. While the COAI has challenged the court order in a review petition, it simultaneously sought relief from the government.
According to Saurav Kumar, a lawyer with IndusLaw, either the government or the apex court has to correct the situation. The court went through “merits of each sub-point” on how to calculate the adjusted gross revenues (AGR) of the telcos, which forms the basis of the revenue-share regime. Hence, if the COAI’s review petition fails, the government may have to “align the definition of the AGR with the accounting standards”. The telcos want the government to dramatically reduce and rationalise the revenue-share percentages to calculate the licence fees and SUC.
