Telecom on the brink; Trai needs to play proper role 

Telecom industry on the brink; Trai, banks need to play proper role 

(Representative Image/iStock)

In an order delivered on October 24, 2019, the Supreme Court (SC) directed the telecom service providers (TSPs) to pay ‘unpaid’ dues towards license fee and spectrum usage charges (SUC) to the department of telecommunication (DoT). In doing so, the SC accepted DoT’s interpretation that adjusted gross revenue (AGR) (license fee and SUC is charged as a percentage of AGR) includes - apart from telecom services revenue - revenue from non-telecom services such as rent, profit on the sale of fixed assets, dividend, interest etc.

Given the inherent character of the order with focus on including revenue from non-telecom services as well, it requires even companies such as Gas Authority of India Limited etc (they had taken licenses for setting up their own network for helping ‘internal’ communications) to pay up. It seems to be an aberration and the entities concerned – mostly state undertakings – should be able to sort out at appropriate judicial fora.

The unpaid dues for the TSPs work out to a whopping Rs 1,47,000 crore. Three firms - Vodafone Idea Limited (VIL) – a joint venture between UK-based Vodafone and KM Birla-owned Idea Cellular, Bharti Airtel Limited (BAL), and Tata Tele Services Limited (TTSL) - alone account for 70% or Rs 1,02,000 crore (VIL: Rs 53,000 crore, BAL: Rs 35,000 crore and TTSL: Rs 14,000 crore).  They were required to make the payments by January 23, 2020. Meanwhile, in a hearing on February 14, 2020, the SC rejected the petitions filed by TSPs for ‘modification of the order’ to provide for some relief and directed ‘immediate’ payment. The service providers need to do it before March 17, 2020, when the apex court will hear the matter again. 

Unable to arrange the required funds (so far, BAL has paid only Rs 10,000 crore, VIL: Rs 3,500 crore; TTSL: Rs 2,200 crore), they have asked the government to provide substantial relief. VIL – the most seriously affected – wants leeway to make a payment over 15 years preceded by three years moratorium; reduction in license fee from existing 8% of AGR to 3% and SUC from current 3% - 5% to 1%; increase in data tariff from existing Rs 5 per GB to at least Rs 35 per GB and moratorium on pending spectrum payments for two years, that is 2020-21 and 2021-22.

In a situation where the government does not provide the desired relief, Vodafone and KM Birla have reiterated their intent of closing the shop (as alluded to in October 2019). The consequences will be grave in terms of erosion in asset value, a large-scale loss of jobs and an increase in non-performing assets (NPAs) of banks.

The bigger damage will be by way of only two players - Reliance Jio (RJio) and BAL - remaining in the market place which is a bad omen for fair competition.

All stakeholders are responsible for the present turmoil in the telecom sector. The service providers who contested the demand and went through the court proceedings for over a decade ought to have factored in a ‘negative’ outcome and made contingency provision. This was not done. Had they done it, today they would not have been in dire financial straits. VIL and BAL also lagged behind in embracing new technologies even as RJio latched on to 4G.

The Telecom Regulatory Authority of India (Trai) abdicated its responsibility by not making corrective intervention when it was needed the most. The then new player RJio was indulging in predatory pricing from the day of launching its service in September 2016. 

But, Trai saw nothing wrong. Adding salt to the injury, in February 2018, it came out with fresh amendments to the Telecom Tariff Order (TTO) to define predatory pricing in a manner so as to give legitimacy to the actions of RJio (it defined significant market player as one which ‘controls 30% market share or above’ thereby excluding RJio as during the relevant period - 2016-17/2017-18, it had more than 30% share).  

‘One-sided’

The amended order was ‘one-sided’ and ‘discriminatory’ aimed at favoring RJio. By the time, that order was set aside by the Telecomm Disputes Settlement Appellate Tribunal (December 13, 2018), the damage had already been done. Other actions of Trai such as steep reduction in the Interconnect usage charge (IUC - it is a charge the telecom service provider of a caller pays to the telco on whose network the call terminates) in September 2017 from the existing 14 paisa per minute to 6 paisa also unfairly added to the woes of incumbent operators.   

The government in its zeal to provide pan-India connectivity allowed RJio to continue with record low tariff of less than $1 per GB (this is a tiny fraction of tariff in other countries pay $15 in UK, China and Germany; $10 in USA) along with free voice call. It didn’t realise the impact this would have on the viability of TSPs. This is precisely what we are seeing today with one of the three leading players (read: VIL) about to go under the hammer.     

Finally, even banks kept on indiscriminately lending to service providers merely on the basis of bloated market valuations (then) ignoring their inherent vulnerabilities. Had the former raised red flag at the right moment, the latter would have taken timely corrective steps thereby preventing the situation from reaching flashpoint.    

Where do we go from here? Letting VIL close shop is clearly unacceptable. But, for the promoters to expect the government alone to bail it out is untenable. They need to own their lapses and infuse the required capital to come out of this crisis situation. As India is a market that is growing exponentially and normalcy with regard to tariff is set to returning (in December, 2019, all three major players decided to say good bye to rock bottom tariffs), it makes eminent sense for Vodafone/Birla to stay invested.             

With the initiative coming from the promoters themselves, the government may help by staggering payments (say over a period up to 10 years) and lowering license fee (to say 5%). Further, to prevent a repeat of the mayhem seen in the last three years, Trai should play a role expected from it. The banks too can help by exercising due diligence and raising ‘red flag’ precisely when needed.
 

(The writer is a Delhi-based policy analyst)

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