The Telecom Sector Crisis

The telecom sector of India has been experiencing huge waves of change, since the first Indian telecom company was given a license, back in 1995. The sector has seen many entrants come and go. According to the Telecom Regulatory Authority of India or TRAI, there are about 1.17 billion mobile-phone subscriptions in India. The growth was especially seen in rural areas, where there are about 500 million subscriptions now. As more Indians are able to afford high-value phone subscriptions, they are now becoming able to access the internet.

The Indian telecom industry is responsible for changing and transforming the lives of billions of people, accounting to billions of dollars of investments, creating millions of job opportunities, and increasing the government’s GDP. India’s growth over the past two decades has been heavily fuelled by the telecommunications industry. However, the sector today is experiencing a crisis, thanks to the Supreme Court’s order to the telecom companies, directing them to pay all remaining dues, as well as a hefty penalty, and an interest amount on both.

The Crisis

The Supreme Court of India has recently given orders to the telecom companies, such as Bharti Airtel and Vodafone Idea, to pay the government all their dues, which add up to ₹1.33 trillion, over the last decade. This decision arose from a long-running dispute between the telecom sector and the State, on how to calculate the revenues to the government. The telecom companies argued that only the revenues from the use of spectrum should be counted. The government, however, argued that AGR should include dividends, handset sales, rent and profit from the sales of scrap, apart from revenue from the services provided. Operators currently calculate AGR that includes some non-core elements. So far, the operators have only paid what they estimated was due as licencing fees and spectrum charges. According to the new SC judgement, the government should be paid the rest of the dues.

The SC has also asked the telcos to pay the government hefty fees, including the interest gathered over the years. The total amount that the companies owe, comes up to a whopping $13 billion. Vodafone has to pay about $4 billion, and India’s third-largest telecommunications company, Bharti Airtel, owes up to $3 billion. They are to pay the amount in a matter of only three months! Vodafone Idea is already struggling with falling revenue, a shrinking user base, and a quarterly loss of around ₹50,000 crores. Bharti Airtel also announced a total quarterly loss of around ₹23,000 crores.

However, none of the dues to be paid to the government are because of new policies. These losses are a result of two very significant reasons. The entrance of a behemoth competitor, Reliance Jio, and the Supreme Court’s recent judgement. The telcos are well aware of the risks and threats that exist in the technology sector. The companies have been asked to continuously make improvements and innovations in the past, but their failure to make prudent judgements, has landed them in this position. Both companies have invested heavily on traditional cellular networks, and only switched to an IP-based network when Reliance Jio disrupted the market in 2016. Moreover, in the course of maintaining ownership, these telcos have ended up increasing their debt.

Operator’s Greed

After a 14-year-long legal battle with the government, telecom operators were asked by the Supreme Court to clear all the dues to the government. The AGR has been a disputed issue since 2003. It arose because of the greed of these operators to deny the government its due share of revenues from the use of a finite public resource. The operators cleverly chose to pay revenue only pertaining to their core operations of voice and data.

According to reports, Bharti Airtel had recorded revenues of ₹81.5 billion with a profit of ₹12.1 billion in 2005. In over a decade, Bharti Airtel’s revenue shot up to ₹920.3 billion and a total profit of ₹51.8 billion, in 2015. Vodafone-Idea has also been churning up huge revenues and profits since 2007. Statistics say that Vodafone-Idea recorded total revenue of ₹43.8 billion and a profit of ₹5.1 billion, which shot up to a revenue of ₹320.4 billion and a profit of ₹31.9 billion. During this time the AGR levy also came down to 8% in 2013. The telecom companies decided to overuse the finite resource while they were making an ample amount of revenue and profit This can be dubbed pure corporate greed.

The argument put forth by the operators is that, with a loss of crores of rupees, the telecom sector will be destroyed, countless jobs will be lost, consumers will get affected, resulting in a monopolistic market. The blame was directly thrown over to Reliance Jio, the disruptive newest entrant in the market. To frame it otherwise, after being unable to honour their contract for over a decade now, the operators are now trying to shift this moral burden to the government, for expecting their dues to be paid.

Rising Shares

After the news of the losses borne by the telecom operators broke, the shares of Vodafone and Idea jumped up by 8.5%. Both companies recorded a total loss of ₹72,000 crores in 3 months. The government may announce a quantum relief package that is under process for the telecom industry. The operators have said that they do not see a problem in the government’s ability to provide relief in paying funds despite the Supreme Court’s orders. The company has high hopes from the government that they would release a bailout package, which has raised the shareholder’s expectations. Many investors in the company had a sigh of relief that the company’s revenue and profits haven’t yet fallen off.

Are Telecom Companies in a Bad Shape?

The operators are constantly pleading to the government for a bailout package. They are trying to get an exit strategy to pay their dues with ominous warnings of imminent collapse. But the fact cannot be denied that both these companies enjoy a fair market share. Vodafone-Idea has a consumer base of about 37.5 crores, the largest market share. While Bharti Airtel comes third with 32.7 crore subscriptions. Today, Airtel has a market capitalisation of about $26 billion with Vodafone-Idea not being far behind. Both companies are backed by heavyweights — SingTel and Vodafone.

The companies have continuously engaged in bad behaviour, greed, taken bad decisions willfully, failed to adhere to the rules and contract agreements, and trying to outsmart the government in paying taxes. It is only fair that they deal with the consequences of their actions. As far as the financial health of Vodafone-Idea and Airtel is concerned, there is no evidence to believe that the companies don’t have enough resources to pay their dues.

Related posts:

I have decided to switch up my blogs a little bit. I want to start talking about my little brother Joshua. Joshua is a very special kid. To be able to grasp how special he is I am going to start at…

On one of the days that I was in Kerala, I went to the vegetable garden my father tends, and harvested the tops of the Blood Amaranth plants. It has always been one of my favourite vegetables. Rich…

What does it take to break even on Medium? I know many come to this platform expecting to make five and six-figure incomes. I have a friend who left the Medium Partner Program after trying for a…