Delay in inevitable: On relief to telecom companies

The approval of the Union Cabinet on Wednesday Relief-cum-reform package for financially stressed telecom sector, although indeed a step in the right direction, has the best chance of delaying the inevitable. In a tacit acknowledgment of the far-reaching economic consequences of the prolonged crisis in the industry along with the extent of stress in the sector, the government decided to give telecom service providers the option of a four-year moratorium on payment of outstanding AGR. and spectrum purchase dues. This single measure alone is expected to ease the immediate financial pressure on telcos, especially Vodafone Idea and Bharti Airtel. The venture, created by the merger of UK-based Vodafone Group Plc’s Indian arm and billionaire Kumar Mangalam Birla’s erstwhile Idea Cellular Ltd, had incurred spectrum payment obligations and AGR liabilities by over Rs 1.68 lakh crore as of June 30. The moratorium proposal, at least for now, should relieve the burden of finding funds to meet these liabilities on the loss-making telco, allowing it to focus on providing critical telecommunications services to about 27 crore wireless customers. to get a place. However, the crisis at Vodafone Idea deepens and is symptomatic of wider industry-wide distortions that have once traversed a dozen-strong sector to just three private players and a struggling state-owned company.

Five years ago the entry of a deep-pocketed newcomer and the ‘take-no-prisoners’ approach to tariffs triggered a price war that eroded average revenue per user and put most legacy telcos operating in the red . The after-effects of the competitive fall in call and data tariffs are still being felt by the surviving operators and the issue of floor prices is one of many that the latest reforms completely skirt. To be sure, the government has sought to address several anomalies in the policy regime, including the definition of AGR, that had led to massive arrears and lengthy and ultimately fruitless litigation. Thereafter, non-telecom revenue will be kept out of AGR, which has been a long-standing demand of telcos. Telecom companies will not have to pay any spectrum usage charges for airwaves received in future auctions, can share spectrum at no additional cost, and can freeze airwaves received in auctions for 30 years instead of 20. Several procedural norms have also been simplified. . Nevertheless, the potential for this sector to be reduced to a monopoly remains high. After Vodafone Group CEO Nick Read bluntly told analysts in July that the firm would not make any additional equity investments in India and Mr Birla threw in the towel last month, the Centre’s relief may be too little, too late.