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Can Govt Intervention Prevent India’s Telecom Duopoly?

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India’s telecom battle has further intensified with the Supreme Court rejecting a plea from Vodafone Idea and Bharti Airtel to defer disputed spectrum licence fee payments. The big potential fallout from this could be that we could see Vodafone Idea shut shop in India. Some already fear that the market would shape as a duopoly of rivals Airtel and Reliance Jio, which is unhealthy for the country. In such a scenario, they believe, government intervention is the need of the hour as telecom is part of critical services.

“There is no question that this is bad news for the telecom industry. It makes situation of Vodafone Idea particularly vulnerable, even more than it was, increasing the risk of a duopoly in the sector, Mahesh Uppal, director at consulting firm Com First India said in an article in Economic Times.

According to estimates by the Department of Telecommunications (DoT), Bharti Airtel has to pay Rs 35,500 crore, Vodafone Idea has to pay around Rs 53,000 crore and Tata Teleservices will have to pay around Rs 12,500 crore as AGR dues.

“Bharti Airtel and Reliance Jio, the telecom arm of Reliance Industries (RIL) will not face any issues. However, Vodafone Idea will struggle to survive unless they bring in a lot of money,” G Chokkalingam, founder & managing director of Equinomics was quoted in an article in Business Standard.

Read more: Can Tariff Hike Save Telecom Companies?

“There are many countries which have two telecom players, but the population size is not as big as India’s. So, for our country whether duopoly in telecom sector is good or not, government has to take a call,” Chokkalingam added.

It needs to be mentioned that Reliance Jio has already paid Rs 195 crore to the telecom department to clear all adjusted gross revenue dues accounted till January 31, 2020.

Vodafone’s top management had said late last year itself that the company is in trouble, and could consider shutting down the India operations if needs arise. The company posted a net loss of Rs 6,439 crore the quarter ending December 31, 2019—that is up from the Rs 5,004 crore loss posted in the same period in 2018, according to a recent report.

The missed opportunity

A number of missed opportunities are seen from this move. With Bharti Airtel, Vodafone Idea and others paying as much as Rs 1.47 lakh crore as AGR, they will hardly have anything left in the tank to even think about 5G networks this year and in the near future. This means, at a time when 5G networks are already rolling out in developed countries, India risks being left even further behind.

Experts are also raising questions about the potential unemployment that could arise from this. While sudden loss of jobs for thousands is already on the cards, the entire ecosystem around the telecom industry, including start-ups and app developers would also be in the doldrums. This is turn is likely to adversely impact related industries such as medicine, education, workplace, retail, entertainment, travel and more.

Why govt. intervention is essential

Experts say the financial health of the telecom sector needs to improve, which can happen only by raising tariffs and through policy support. While on one hand, government and the Court wants companies to clear dues at the earliest, on the other, duopoly won’t be a likely scenario the government wants this market to be.

Faisal Kawoosa, a telecom expert, said given the current scenario, government intervention is the need of the hour as telecom is part of critical services. In all likelihood, DoT should intervene and give some time to telcos to pay the AGR dues. The government would not want Vodafone Idea to quit India.

Issues such as rationalization of levies has been a long-standing demand of the telecom industry, which has gained strength in the past few years. The government’s new telecom policy, announced last year, talked about it briefly but no specifics have been declared. When India announced its New Telecom Policy in 1999, it said the industry was of vital importance with huge ramifications on the entire economy. In other words, the government vowed to create an enabling framework for the development of telecommunications.

While that worked in theory, policy makers also realized that the auction of airwaves and sale of licenses could fetch billions of dollars, a revenue source key to narrowing the government’s budget deficit. For instance, in a 2015 auction, India raised a record $18 billion, after getting almost $10 billion in the previous year.

Also, spectrum costs in India are among the highest in the world, according to data compiled by Analysys Mason Spectrum Tracker. The leading telecom operators in India pay the largest share of their aggregate revenue for airwaves at 7.6%, followed by Thailand at 7.3% and Bangladesh at 7%, according to Moody’s Investors Service.

“Telecom was owned by the government initially before it was privatized. Also, the industry needs to work with collaborative competition rather than rivalry,” said Kawoosa.

The road ahead

The Modi government’s decision is now likely to determine the future of the industry, believe many. And it is high time, the government must step in.

There is already a silver lining. The government said this week that it is considering some relief measures. A panel of senior bureaucrats will look into steps including deferment of airwaves payments that are due by March 2021 and 2022.

Some believe, a possible first step could to subsume this matter under the newly announced “Vivad Se Vishwas” scheme, wherein taxpayers are required to pay only the amount of disputed taxes and will get a waiver of interest and penalty.

The Center must also reconsider its approach to the sector, beginning with an overhaul of the current licencing regime. There could be many more dramas unfolding in India’s telecom sector in the days to come

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Sohini Bagchi
Sohini Bagchi is Editor at CXOToday, a published author and a storyteller. She can be reached at sohini.bagchi@trivone.com