Since the early 90s, there has been a drastic development in India in terms of technology related to telecommunication as well as mobile devices now, compared to when they were initially launched. In India, there was a revolutionary change when the 2G-spectrum was launched and as years passed, with the initiation of the advanced 4G network by deploying LTE 900 technology for better connectivity and management, customers were able to enjoy the significantly enhanced network using their smart-phones with additional connectivity as well as high-speed data capacity. Many mobile manufacturing companies also started growing rapidly to adapt to the advanced development in 4G technology.
There are various leading Telecommunication Operators in India, who provide 4G in the superior 900 Mhz spectrum band to their customers. In India, the Department of Telecommunications (DoT) conducts auctions of licences for the electromagnetic spectrum. Telecommunication Operators have to apply to participate in the auction to obtain a licence. Operators who participate, bid on the band of spectrum ranging across the 7 bands of 700 MHz, 850 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz that would be put up for sale across 22 different circles.
Telecommunication Operators have to pay licence fee which was waived off by the government in the form of the revenue fee-sharing model in the late 90s. A spectrum usage charge is levied on mobile services companies as a percentage of their adjusted gross revenue (AGR) and is payable as per the spectrum slabs notified by the government from time to time. AGR is a sum of the pre-GST value licence fee and spectrum usage charge. As per DoT, there are huge dues to be recovered from the Telecommunication Operators.
India’s telcos are looking at shelling out almost $5.85 billion as additional spectrum usage charges if a case on the definition of adjusted gross revenue (AGR) in the Supreme Court goes in the government’s favor. That figure, calculated by the telecom department, will be on top of the $13.13 billion to be demanded from companies as licence fees and penalties. The government says that the AGR covers a telco’s entire revenue, while companies contend that it should include only core services. Although spectrum charges are not part of the case in the Supreme Court, a favorable order on the definition of AGR will strengthen the government’s bid to recover these dues.
In order to manage the debt, many Indian Telecommunication Operators have partnered with different international companies like SingTel, Vodafone, etc. Airtel has partnered with SingTel which is based in Singapore and Idea has a joint venture with Vodafone. Currently, SingTel, directly and indirectly through Bharti Telecom owns over 35% in Airtel.
India ranks second in terms of number of telecommunication subscriptions, internet subscribers and app downloads globally. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to a report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG).
Since the last few years, due to heavy competition between the Indian Telecommunication Operators, profits of the Operators kept reducing. Reduced voice-call rates and data charges caused huge losses to Operators and also resulted in customers moving from Operator to Operator as per last month’s survey reports. As an example, Vodafone-Idea users swiped out to either Airtel or R-Jio. If we consider average profit losses in percentage, it is down by almost 30%.
Based on the Supreme Court’s verdict to pay all dues within a period of two months, all the Telecommunication Operators declared their quarterly earnings as well as losses incurred. The loss made by the telecom partners was also declared. SingTel declared a loss of around $0.5 billion in the last quarter due to the one-time provisioning for Airtel’s expected payment. All Telecommunication Operators urged the government for some relief in AGR dues. Against this request, the government agreed to give a relief for the pending dues but the present AGR charges have to be paid without fail. Pending dues and their interests can be paid in multiple instalments. This move could change the market landscape for the entire industry going forward.
Indian Telecom industry has been down for many years due to heavy competition, but the industry is now getting accustomed to the trends and these charges are now bottomed out, to cover up the loss and bring the industries in a positive mode to start gaining. From an investor’s point of view, it is the best time to invest in stocks as companies are not far away from a profitable future. Companies are also looking at investors for additional funds to pay the dues without any interventions in the present services. Vodafone is bearish on the Indian Telecom markets and states that it may withdraw all services from the Indian markets.
Concluding Statement: All telcos must pay the charges since they agreed to payments based on revenue. Since the dues have not been paid, a situation of crisis has arisen due to the heavy losses incurred. DoT has to receive a lot of dues from the telco players so they have asked the Supreme Court to take legal action. As per Indian telecom markets, we (the consumers) have been saving a lot of money since a long time in voice calls as well as internet charges but it’s time to bid adieu to the low charges and get ready to pay high charges to all Internet Service Providers. This move would impact us users only as any additional cost to the telcos would surely be passed on to the hapless users like you and me!
[Rajat Singhania, is the founder and Chief Visionary Officer at the SocioRAC Online LLP, a web/ mobile application company based out of India. The views expressed are his own.]