RSTV: THE BIG PICTURE- TELECOM SECTOR: CHALLENGES & WAY FORWARD
Introduction:
In a setback to telecom service providers, the Supreme Court on Thursday allowed the Centre’s plea to recover adjusted gross revenue of about Rs 92,000 crore from them. A three-judge bench, headed by Justice Arun Mishra, upheld the definition of adjusted gross revenue formulated by the Department of Telecom. In July, the Centre had told the apex court that leading private telecom firms like Bharti Airtel, Vodafone and state-owned MTNL and BSNL have pending licence fee outstanding of over Rs 92,000 crore till date. Industry body COAI has expressed deep disappointment over the SC ruling and termed it the last straw in contributing to the sector’s financial distress. It added that it remains to be seen whether the industry — which is reeling under a daunting debt of about Rs 4 lakh crore and is in dire financial straits — will be able to recover from this setback. The bench made it clear that there would no further litigation on the issue and it would fix a time frame for calculation and payment of dues by the telecom companies
SC Ruling for the Telecom sector:
- In a setback to telecom service providers, the Supreme Court on Thursday allowed the Centre’s plea to recover adjusted gross revenue (AGR) of about Rs 92,000 crore from them.
- A three-judge bench upheld the definition of adjusted gross revenue formulated by the Department of Telecom (DoT).
- It added that the service providers would have to pay penalties and interests to the DoT.
- The bench made it clear that there would no further litigation on the issue and it would fix a time frame for calculation and payment of dues by the telecom companies.
- In July, the Centre had told the apex court that leading private telecom firms like Bharti Airtel, Vodafone and state-owned MTNL and BSNL have pending licence fee outstanding of over Rs 92,000 crore till date.
- In an affidavit filed in the top court, the DoT said that as per calculations, Airtel owes Rs 21,682.13 crore as licence fee to the government. Dues from Vodafone totalled Rs 19,823.71 crore, while Reliance Communications owed a total of Rs 16,456.47 crore, the DoT said.
- BSNL owed Rs 2,098.72 crore, while the MTNL’s dues stand at Rs 2,537.48 crore, it said. The total amount, which has to be recovered from all the telecom firms, accrues to Rs 92,641.61 crore as on date, it said.
- As per the New Telecom Policy, telecom licensees are required to share a percentage of their adjusted gross revenue (AGR) with the government as annual license fee (LF).
- In addition, mobile telephone operators were also required to pay spectrum usage charges (SUC) for the use of radio frequency spectrum allotted to them.
- Telecom operators had moved the top court against the Telecom Disputes Settlement and Appellate Tribunal’s (TDSAT) order which ruled that certain non-telecom revenues like rent, profit on sale of fixed assets, dividend and treasury income would be counted as AGR on which licence fee would have to be paid to the government.
- The TDSAT order had exempted a large number of streams from the definition of AGR, like capital receipts, bad debt, distribution margins to dealers, forex fluctuations, sale of scrap and waiver of late fee.
- The telecom tribunal also said revenue from non-core sources such as rent, profit on sale of fixed assets, dividend, interest and miscellaneous income must be included while computing a carrier’s AGR, dealing a setback to telecom operators who would have to shell out more towards licence and spectrum usage fees.
- The ruling is out at the worse time while the telecom sector is already in trouble.
- The sector has already accumulated losses of 4 lakh crores.
- This additional burden will be at major setback to the industry.
Strength:
- Strong demand: World’s second largest in terms of telecom network, internet subscribers as well as app downloads; telecom sector likely to have economic value of $217 billion by 2020
- Increasing data usage: India is also one of the largest data consumers (an average 1 GB data per day per user) globally
- Good telecom infrastructure: Large telcos have been investing on network infrastructure to improve customer experience for last few years
- Fast-tracked reforms provide room for growth: National digital communications policy, 2018 aims to attract $100 billion worth of investments in the sector by 2022
- Proper value addition
Weakness:
- Intense competition: Cut-throat price war among telcos has led to consolidation in the industry as well as declining overall profits for last couple of years
- Lot of freebies were added which cannot be taken back.
- Debt and finances: Incumbents are currently having unsustainable debt levels owing to intense competition in the industry.
- Late adoption of 4G and advanced wireless technologies: Due to regulatory uncertainties and delayed spectrum auctions, India were late to the 4G. Though world moves towards the first commercial deployment of 5G in 2019-mid, India to be a a late adopter of 5G services
Opportunity:
- Mobile penetration: unique mobile subscribers to the total population is expected to reach around 63% in 2025 from 58% in July 2018
- Increase in internet users: Rise in mobile-phone penetration along with decline in data costs is expected to add 500 million new internet users in India.
- Untapped rural market: Rural tele-density reached 58.8% and 44.6% of the total wireless subscribers are from rural market
- Exploring adjacent businesses in an evolving environment: Moving beyond traditional telecom business to wider digital consumer space like content and mobile banking solutions
Threat:
- 60,000 jobs in telecom sector is in danger.
- Interconnection charges: Interconnection charges will be zero effective Jan 1, 2020 from current rate of 6 paise/min. This would impact the revenues of incumbents
- Spectrum auctions: Government of India has kept a high reserve price for spectrum auction. Given ongoing pressure on ARPU and margins, purchasing the spectrum at a high price (in circles like Mumbai) put further stress on the balance sheet.
Conclusion:
The telecom sector in India have to deal with various challenges like maintaining the sufficient spectrum, Adoption of new technologies faster to be able to use new features and techniques to serve the customers with better and feature rich service, Government and regulatory agencies, various mobile handsets available from various companies brings lot of issues and content partners etc. Also, it is evident from the current scenario that the Voice alone will not be sufficient to generate revenue and hence the focus is required to be shifted towards various data services.
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