India's telecom sector, the favourite golden child of good tidings for much of the last two decades, now stand poised at the crossroads at the end of 2019. The sheen of the glory days seem nothing, but a faint memory as it faces possibly the biggest existential crisis in its history in India.
Bad news kept piling up for India's telecom sector pretty much through the year, but rock bottom would probably be the government decision on December 20 to auction spectrum in March-April of 2020—at pretty much the high rates the industry was dreading. The Digital Communication Council hopes to mop up Rs 5.22 lakh crore from auctioning the spectrum in the 8500Mhz band, with 6050Mhz of it for rolling out 5G services, after accepting the recommendations of the Telecom Regulatory Authority (TRAI) not to reduce the base prices. The question is, does any of the beleagured players, except perhaps for Mukesh Ambani, have the deep pockets for it?
That could well be another nail in the coffin of the once cash-rich sector that is wallowing in the miseries brought about largely due to its own profligacy. Once a profit churner that was quiet the pied-piper luring in India's millions with next-to-nothing call rates and rock bottom data plans that were the cheapest in the world, the sector has seen a bottoming out of sorts through 2019.
Though the launch of cellular services by private players ushered in a new dawn in India's stuffy telecoms sector in the mid-nineties, it took some time before hitting bulls eye. Initially, there were more than a dozen players with licences offering services across the various pan-Indian cellular circles. Prohibitive mobile voice call rates, at one point as high as Rs 16, came crashing down only by the turn of the century. Consequently, multiple rounds of mergers and acquisitions brought down the operators to just Airtel, Vodafone-Idea and Jio, beside sarkari BSNL and MTNL.
This was followed by players bringing down call rates and incoming calls free, thanks to the Ambanis, who entered the fray offering CDMA services at rates much cheaper than the existing GSM players.
The second round happened once mobile internet became a reality. While the Ambanis business delienation saw younger brother Anil taking over, and making a mess of the Reliance CDMA business, elder brother Mukesh upended the entire sector with the launch of Jio in the mid-2010s. By offering call and data packages costing next to nothing, Jio put a smartphone in the hands of tens of millions of Indians, kickstarting a social revolution that we are yet to see the last of.
Alas, it also put the entire sector in jeopardy. Companies like Airtel had been on an investment spree, including not limited to venturing into markets like Africa. So when the Jio blitzkrieg hit, other operators had no other option, but to match the rates. The result? Operating losses for all players across the field. Vodafone Idea, a merger that could go into the record books for the wrong reasons, had losses in the second quarter of this financial year ballooning to Rs 50,922 crore. Airtel's reported losses in the same period tops Rs 22,000 crore. State-run telecom giant BSNL found it difficult even to pay salaries to its staff, with the government deciding to try its luck by merging it with MTNL, which operates in Mumbai and Delhi.
Meanwhile, the Ericsson case over non-payment seemed like the last nail in Anil Ambani's Reliance Communication—once the second biggest telecom player in the country—now knocking at the doors of bankruptcy courts. With the US government blacklisting Huawei, said to have the best 5G technology available, Indian government also got into a quandry over allowing the Chinese player into as sensitive an area as providing the backend for the rollout of the upcoming 5G technology.
As if all these industry woes were not enough, the eve of Diwali saw the Supreme Court pronouncing its verdict on aggregated gross revenue (AGR) issue; it went with the Department of Telecommunications's directive that the telecome operators had pending dues worth Rs 1.47 lakh crore, a reading which taxed adjusting revenues to include income from non-core areas as well, something the telecom companies were contesting. This instantly raised the debt burden on Vodafone-Idea by Rs 41,000 crore, and that on Airtel by Rs 39,000 crore. Jio, by contrast, was to pay up only Rs 41 crore.
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- Launch of Jio Bharat phone could help Reliance gain further share over rivals
- Mass resignations at Vodafone Idea? 20 per cent of its sales team quit, says report
The only solace was the government announcing a two-year moratorium on the payment, even though telecom honchos have repeatedly stated that they simply do not have the money. Insisting he does not have the money unless the government provide relief, Kumarmangalam Birla, under whose business empire Vodafone-Idea belongs to, even threatened that he would be forced to 'shut shop' otherwise.
Airtel chief Sunil Bharti Mittal also called on the government to be 'sympathetic' to the situation. Yet, with no stimulus on the horizon and the economy in a tailspin, all telecom operators have, since then, gone in for a 15 to 40 per cent tariff hike.
The bad news kept pace relentlessly. The government recently told Parliament that it will also charge about Rs 3.2 crore as call drop charges from all the telcos. But as far as bodyblows go, year-end's spectrum auction announcement could be the worst. “With spectrum reserve prices 4 to 6 times higher than that of similar spectrum sold recently in several countries, high levels of debt and prevailing financial stress in the sector, telecom service providers will find it difficult to raise funds to participate in the auctions,” pointed out Rajan S. Mathew, director general of Cellular Operators Association of India (COAI), calling for a postponement of the spectrum auctions until “the sector regains some financial strength.”
Will the government soften? Will telecom operators find a saviour? And, are the happy days of virtually free voice calls and dirt-cheap data a thing of the past? The first few months of 2020 will be crucial for India's telecom world. We're all ears.