Mobile network usage is vastly different than a decade ago. The usage has drastically increased and continues to increase because of technological evolution in different sectors. All sectors have influenced and played a major role in the gradual increase in network usage and mobile connectivity.
With reference to my last column regarding “Growth in mobile connectivity acting as a heavy loss for Telcos,” we discussed the spectrum charges and license fees paid under the scheme provided by the government that is Adjusted Gross Revenue (AGR). As per the recent Supreme Court’s decision, all telecommunications service provider (TSPs) were advised to pay the dues within three months. Later, different TSPs urged the government to support the dues that were demanded by the Supreme Court to clear them. Internet services are widely used in our daily life for multiple purposes. All TSPs are in high competition for the volume increment in customers. In the current competitive markets, where TSPs worked with the strategy to increase the volume of customers and at times shrunk profits to their lowest, the real potential of the telecom sector is affected. In an ecosystem, multiple non-TSPs also play a vital role in making the ecosystem, as well as digital India vibrant.
The major telecom service providers are facing financial crises because of unhealthy competition which may result in the worst marketplace position of India and adversely impact the complete telecom ecosystem.
CII President Vikram Kirloskar has expressed his view based on his analysis by revisiting the revenue-sharing business model as discussed in the article, ”Growth in mobile connectivity acting as a heavy loss for Telcos” that “the government must consider the issues regarding the telecom sector and provide prior relief.” CII and FICCI have collaboratively urged the government to provide support against the Supreme Court order. On the contrary, R-Jio, being the only profitable TSP has strongly supported the Supreme Court’s order and said they have enough funds to pay all the taxes and dues.
Based on November hearings, 7 lakh crore INR is the expected debt in the Indian Telecom sector and that causes an impact on the overall economy of India. To prevent the predictable disaster in the telecom industry and economic damage to the ecosystem, top leaders of the telecom industry like CII President Vikram Kirloskar, FICII President Sandip Somany have approached the government as well as individually the finance minister for economic precautions in the Indian Telecom sector. Based on different surveys, India ranks second, with more than a billion subscribers in the telecom industry, among all the other countries. With the increase in population, TSPs have to increase their infrastructure facility as well as implement new technologies in the services and in turn the increase in expenses. Moreover, the Indian telecom sector charges are also shrinking to such an extent that it is becoming a disastrous burning ball for the economy as well as companies directly or indirectly connected to TSPs.
Summarizing the statements given by the CII president as well as the FICCI president in different words to the finance minister of India, both have presented their points against the Supreme Court order as well as R-Jio. It was mentioned that the nation’s economic strength is under performing and to save the economic health as well as the telecom sector, if the government addresses the issue and works on a potential strategy, both the economy and the telecom sector would be on the path of growth.
If the government fails to support the telecom players in India, it may affect other sectors too, especially those which use the telecom services at every level.
Telecom Partners Decision:
As per the recent updates, Bharti Airtel is revisiting its investors and financial positions. Airtel’s move to raise $2 billion via equity could reduce the promotors’ stake by 6 percent. The company in an exchange filing said it will launch one or more QIPs or offer for sale of equity shares or a combination of similar offers to raise $2 billion. It is expected that approximately $4 billion is the value due as per AGR definition which can be covered up by equity or QIPs. Airtel declared the price hikes in present tariffs by 40 percent to 50 percent, and this may lead to a profitable revenue generation strategic plan by 2020-21.
Aditya Birla Group Idea, a telecom partner with the British based company Vodafone has declared that if there is no support from the government, Vodafone-Idea services may shut down in India since markets in India are toward critical trends, and none of the telecoms can pay the due which are in crores within a deadline of 3 months.
All the company leaders seek a business model that is competitive as well as transparent that helps in revenue generation from the government.
Ruling TSPs’ View:
R-Jio is the only company in the telecom sector leading this robust competition and has not sought help from the government. R-Jio is willing to pay all its dues within the deadline using the fund as per company books. It is the only company that provides the latest technological services at a cheaper rate even after hikes made in prices by all the TSPs. R-Jio continues to grow, and the volume of subscribers kept on increasing post corrections in its packages of up to 40 percent.
The trends are leading toward damaging the telecom industry because of AGR dues and low pricing structure. This is a highly negative trend for the company’s revenue and for the Indian Revolution in the Telecom Industry. All the TSPs seem to be in loss, but the market returns might give multiples in the upcoming time period.
Earlier in the ’90s, the government launched an AGR scheme for the relief of all Telcos and the growth of telecom in India. In the recent developments of the AGR scheme, all the Telcos were ordered to clear the dues within strict deadlines. On the other hand, competition among TSPs has led to the lowest internet charges in India compared to the rest of the world. This proves to be unhealthy competition which is discussed in this article in depth. Reliance Jio proves to be the only leading telecom provider at the lowest prices. Other telecom companies have filed a report against Reliance Jio to the finance minister of India. Top leaders are trying to point out the potential of telecom markets in India and analyze the situation to develop transparent and profitable strategies. Some market sentiments are also being discussed as it can prove to be a revolution for Indian Telcos as well as the complete ecosystem. The financial conditions and decisions of telecom players are also critically important in these precarious conditions.
[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.]