The diatribe of the Mukesh Ambani-controlled Reliance Jio against its competitors Bharti Airtel and Vodafone Idea is growing louder. Jio, the most recent entrant in the sector, has asked the government that it does not have an option of going against the Supreme Court judgement and provide any relief sought by incumbents. After the Supreme Court’s judgement on AGR (adjusted gross revenues) in late October, the government formed a committee of secretaries (CoS) last week that will look into ways to mitigate the financial stress being faced by the sector.
Although Jio has said that the rival telcos have financial strength to pay AGR dues of over Rs 92,000 crore, it also said that the failure of its rival operators will not have an impact on the sector dynamics with the existence of vibrant competition including presence of PSUs – MTNL and BSNL.
The financial condition of incumbent telcos is worst. Airtel, for instance, has recently postponed its second quarter (2019/20) results to November 14 asking for more time to assess the situation post the AGR shock. Vodafone Idea has also informed stock exchanges that the telco is not aware of the Vodafone Group’s plans to exit the India operations.
“SC verdict is a death-knell to the already struggling telco (Vodafone Idea). In absence of support from the government on this issue, we foresee limited possibility for it to revive,” said an October 24 report by investment firm Dolat Capital. Vodafone Idea has been posting net losses for three consecutive years. The company’s net loss in the first quarter of 2019/20 stood at Rs 4,873.9 crore. “It’s a precarious situation for Vodafone Idea; they don’t have many options at the disposal,” says a telecom analyst.
What if, in the worst-case scenario, these operators do fail? Will Jio and MTNL-BSNL be in a position to serve the large telecom user base of 1.19 billion? Together Jio and BSNL/MTNL control almost 40 percent of the wireless market subscriber base, and Jio tops the sector with 31.7 percent revenue market share.
Experts say while it might not be a desirable situation but it is quite possible to have one private and one PSU operator. “Any reduction in the number of players or a lower intensity of competition will hurt consumers. But from the supply side point of view, there would not be any problem. The remaining players can easily augment their services with more towers, spectrum and electronics,” says Mahesh Uppal, director at NCR-based consultancy firm ComFirst.
Monopolies do exist in the infrastructure sector. Indian Railways has long been operating without any competition, but since it is controlled by the government, there’s no fear of exploitation of the consumers. The biggest fear in the telecom sector is that the discipline that the competition brings in the market will disappear if there is just one private operator – which is not good for end consumers.
Through lobby body COAI (Cellular Operators Association of India), the incumbents have asked the DoT (department of telecom) to intervene and save them. “In the absence of an immediate grant of relief from the government, two of the three private mobile operators – Airtel and Vodafone Idea – which provide services to about 63 per cent of current subscriber base, will face an unprecedented crisis,” COAI letter to the telecom minister Ravi Shankar Prasad said.
Can the government afford to pull incumbents out of their mess? There are various proposals that are being talked about to save telcos, including deferment of spectrum auction payment and giving moratorium to them on their AGR dues. Bailing out private telcos, experts believe, could set a wrong precedent, as more clarion calls may come from other distressed sectors.
“It’s going to be a tough call for the government. Several sectors are seeking bailouts such as agriculture, power, automobile and aviation. The government will find it challenging to justify any significant financial relief to any sector. It will also be bad optics for the government,” says Uppal.
Out of 15 operators that are affected by the SC order, 10 have already folded up. While their viability was mostly susceptible, Jio’s entry three years ago precipitated the exit. It will be interesting to see what happens to incumbents, which are fighting the financial battle on one hand and countering the pressure tactics employed by Jio on the other.―Business Today