If someone is asked what is the most important thing that keeps us going in today’s digital scenario, they will probably answer, “a smart phone with a strong network connection”. While that holds true for everyone, the industry connecting everyone seems to be rather “disconnected” from much needed reforms. The health of the telecom industry in India has been questionable for a number of years now. Although after the New Telecom Policy in 1994, the teledensity of India has increased to 88% from a meagre 1% earlier, the market hasn’t been as rewarding for telecom companies.

In 2007, when Jio entered the markets, everyone was struggling with high prices for a limited talktime or data package. The entry of the ‘Jio’ Network in the market supported the Digital India campaign and worked as a boon. However, market competition and price war benefited the consumers only. Many years later, when Tata, BSNL, MTNL, Idea and Vodafone seemed to be out of league, Jio’s innovative marketing tactic helped it acquire a larger consumer stake in the market, closely followed by Airtel.

But the saga of problems is not something new, it started years ago due to differing legal interpretations of AGR (Adjusted Gross Revenue). When the Government of India switched from the fixed revenue model to the revenue sharing model, they were entitled to a certain percentage of telco’s AGR which included telecom and non-telecom revenues for calculation. The country saw a spurt with 14 players in the industry in the year 2003 and raised the demand for AGR payments, which now also included revenue from interest of subsidiaries and dividends earned to name a few.

For this matter, the telecommunication companies approached TDSAT (Telecom Disputes Settlement Appellate Tribunal) in 2006 and TDSAT ruled that the matter must be sent back to TRAI for fresh consultation while rejecting the centre’s contentions. The centre, on the other hand, moved to the Supreme Court. However, this was the least of their issues, during the case and court proceedings. 122 telecom licences in the 2G scam case were cancelled. Now, the spectrums were to be issued through auctions.

In 2019, the Supreme Court held the GoI’s interpretation of AGR to be correct which burdened the companies with the payment of AGR, along with an interest and penalty on non-payment. The judgement came at a time when the industry was already facing intense competition from Reliance Jio Infocomm, due to its sheer low prices and tariffs. This specifically affected Vi and as a result Vi’s subscriber-base plummeted from 408 million users in 2018 to 253 million by 2021. The company became highly debt-laden with a net debt of 1.9 lakh crores. With the dues of AGR and Spectrum usage charges, Vi wanted to pull out of the business and did not want to put in any more good money to get back the bad one!

The government most certainly did not want that to happen as the industry would then have been reduced to a duopoly. This could mean that consumers would have only two options to choose from and the companies could conveniently raise the prices without investing much in innovation, research and development.

To prevent such a scenario, the government had to lend a hand to Airtel and Vi, in order to maintain at least three players in the industry. With unviable ARPUs (average revenue per user), high spectrum prices, excessive liabilities accumulated coupled with a major chunk of revenues being given as interest payments and high corporate tax rates, the industry had to find a support. Though Vi did not miss any payment, they had nothing left worth pursuing the business in the country. Many analysts demanded a substantive rise in tariffs but that would have not helped the companies as such.

Finally, the government on September 15, 2021 came up with some reforms for the telecom sector, which some analysts refer to as ‘reliefs’ and not ‘reforms’. These nine structural and procedural reforms were designed to meet the short-term liquidity needs and resolve long-term issues of the telecom companies. Debt-laden Vi and Airtel will be relieved after a 4 year moratorium on payment of dues from the Supreme Court Judgement on Adjusted Gross Revenue. Along with the 4 year moratorium, they’ll have to make the payment of spectrum purchased in past auctions, except the 2021 auction, which is also likely to provide relief to the companies. However, the government will charge interest if the companies opt for the moratorium. It is expected to give a breather of Rs. 45,000 crores per year for the next four years. Other such measures also include streamlining of the auction calendar, removal of spectrum usage charges from auctions will also reduce the outflow. It will also help them plan the auctions but to benefit from the measure, the companies would have to buy more spectrum.

Although the measures are expected to benefit all the companies, Vi with a net debt of 1.9 lakh crores will benefit the most from these. Nevertheless, Vi would still have to raise capital, increase network investments and go for a sizable hike in 4G tariffs. It also needs to head off competition from Reliance Jio and Bharti Airtel which will now be more aggressive in terms of quality of network, services or extremely competitive tariffs and prices. Apart from these, the government has done away with the inclusion of non-telecom revenues and the additional 0.5% of Spectrum Usage Charge, while also allowing telcos to hold the spectrum for 30 years which was 20 years earlier. The ceiling of FDI has also been raised to 100% from the earlier 40%, which can help as a booster to the industry. Moreover, the government will have to bear the loss while earlier it used to receive as much as Rs. 53,987 as revenues.

After the end of the moratorium period, the government will have to provide an option to the telecom players to convert the interest arising due to deferment of payment into equity at the option of the government. Vi has already taken up this offer.

The government became the largest stakeholder in Vi and currently owns 36% of the company. While everyone doubts this decision of the government, it was perhaps the best out of possibly worse choices available to both the company and the government. The dues to the government and its uncertainty about continuity of the company was what convinced both the parties. The government, however, does not want to play a role in overseeing the affairs as per the rumours but definitely would want to offload their stake as soon as things stabilize, as expected by the analysts. Now the measures along with all that the government is trying to do today, with the FDI ceiling pushed to 100%, it is expected that the situation of the industry might get better in the near future. Experts also demand the utilization of money worth Rs. 58,809.56 crores in the USOF fund and compensation for catering to the needs of the rural and economically weaker consumers. Budget 2022, although did not have much for the sector, with 5G tests going on, 5G auctions would be conducted this year in a streamlined manner and hence, analysts hope that things might turn out in a better way for the companies this year.

By Vanshika Anand