A Distress Call From Telecom Operators

It is a market that boasts of more paying customers than the population of most countries. The transformation of Indian life that it has caused over the past decade or so, be it social or commercial, has held us spellbound. But, just as wireless web connectivity reaches another pivotal moment, with newer technology promising to open up even more expansive possibilities of what our handsets can do, leaders of the telecom sector are sending out distinct signals of distress. In separate statements made recently, Sunil Bharti Mittal of Bharti Airtel and Kumar Mangalam Birla of Vodafone Idea have warned that the cost of staying in the business is becoming exorbitant. The two telecom operators posted record losses in the previous quarter after accounting for their accumulated dues to the government; these are vast sums they were directed to cough up after a widened definition of the revenues they are obliged to share with the Centre was upheld by the Supreme Court. Although the government has allowed them to defer payments, the two companies have argued that the relief was inadequate. They have survived a tariff war of attrition after Reliance Jio stormed into the field as a data-loaded price warrior three years ago, but even a tariff-raising truce may be unable to restore every operator to financial health, it is feared.

A market with some of its players too cash-strapped to compete effectively would begin to lose the vibrancy of competition that spurs growth and innovation. “The situation is dire,” Mittal said, referring to the losses of Vodafone Idea, state-run Bharat Sanchar Nigam Ltd (BSNL), and his own firm, calling it “a matter of survival”. While Bharti Airtel plans to raise the amount it owes the government by diluting equity and taking fresh loans, both partners in Vodafone Idea have indicated that they are unlikely to pump fresh capital into their venture unless the government relaxes its revenue claims. The Centre, though, has said it will stick to the court timeline for collecting its dues. Subscribers have to bear some part of the burden. Along with rival Reliance Jio, the two in distress have raised their tariffs by up to 40%. Under usual circumstances, such a joint hike would attract the attention of India’s competition regulator, though the mitigating factors in this case are obvious. Moreover, the détente that allowed it to happen may not last. While Mittal has asked for the telecom regulator to set a floor for service prices and argued that industry viability requires the average telecom user to pay ₹300 per month, up sharply from the current figure, there is little to justify such intervention in a market such as this.

As with any market, private operators must have pricing freedom. The only condition is that sufficient rivalry must prevail. On its part, the government has laid out a vision of an industry that has space for three private players, alongside the state-owned BSNL, and this seems fine so long as no operator finds itself hobbled and no cartelization takes place. The trouble in the past has been a policy framework marked by large swings and high uncertainty, with judicial interventions shaking the market up. How scarce airwaves are best priced was part of the problem. From throwaway rates, we moved to mega-bids for auctioned spectrum that left operators highly indebted. Auctions are fair, no doubt, but costs still need to be reasonable. In sum, we need a stable policy that promotes healthy rivalry. – Livemint