The recent Supreme Court order reserving its judgment on petitions by telecom operators seeking more time for paying thousands of crores in unpaid dues to the government and the fact that some telecom companies are bleeding has pointed to a possibility of an increase in our mobile bills.
Dirt-cheap prices may have helped Indians get hooked to mobile phones, leading to an unprecedented spike in customers, making the country the second largest market, behind China. But analysts have pointed out that many operators may not be sustainable in the long run without a tariff hike. So the big question is that will India continue to enjoy the cheapest telecom tariffs in the world? Will a hike impact the growth of India, which is the fastest-growing telecom market today?
As per the latest numbers from the telecom regulatory authority TRAI, the number of telephone subscribers stands at 1178 million at the end of March, marginally down from 1181 million reported in the previous month.
Among the three major players, Reliance Jio has taken a clear lead with 34% wireless market share, while Bharti Airtel and Vodafone Idea stand at 28% and 28% respectively.
In March, Vodafone Idea reported a drop of 6.3 million subscribers. Airtel lost 1.2 million users. Jio has meanwhile added 4.7 million subscribers in March.
The facility of mobile number portability (MNP) across all states and telecom circles since July 2015 has made it easy for consumers to change service providers without changing their existing mobile numbers. It also helped companies poach into rivals' subscriber base.
There was a huge churn in the market. According to TRAI, 5.7 million subscribers submitted their requests for MNP in March, taking the cumulative MNP requests to 487.3 million since the implementation of MNP.
So What? Why should mobile phone rates go up?
Since the rates are very low at present, it is very likely that they can rise, particularly given the financial condition of the players themselves. Since Jio's launch in September 2016, Indian consumers have been enjoying low rates. Jio's entry had shaken the incumbent players. It disrupted the market with free data and unlimited voice calls. Every player had been forced to slash rates to stay afloat in competition.
Most of them cut rates ahead of Jio's launch, in August 2016, while others, a month later. For instance, Airtel brought down Internet prepaid charges by 80% to as low as Rs 51 per gigabyte (GB) under a special scheme. To avail the scheme, customers had to recharge with Rs1,498. At the launch, Jio offered the data at Rs50 per GB.
In a few months since Jio's launch, the incumbent companies started bleeding to an extent that their operations turned financially unviable.
In such a situation, it is logical that all players, standing or otherwise, will try and raise rates.
Do less players mean higher prices?
Several companies have gone into liquidation in the last few years, after they found it difficult to service the huge debt taken by them. Among those who shut down operations are Reliance Communications, Aircel, Sistema Shyam and Videocon. These companies still owe a lot of money to the government.
In 2012, a mega telecom scam had blown a hole in the market, ripples of which have continued to be felt for years. The supreme court cancelled 2G spectrum licences, acting on a report by the Comptroller and Auditor General of India (CAG) that licenses were issued to telecom operators at throwaway prices causing a huge loss to the exchequer. At least eight companies such as Unitech, Sistema Shyam, Loop, Videocon and Etisalat lost their licenses, and it eventually led to their shutdown in the country.
I keep hearing about Interconnect Usage Charge (IUC) and how that could impact bills. Is it true?
The introduction of the Interconnect Usage Charges (IUC) and the resultant tariff hikes created some turmoil in the market last year. IUC is nothing but a small charge that an operator pays to other telecom companies for every voice call made to subscribers of those companies.
In October 2019, Jio started charging for voice calls made to subscribers of other telecom companies to account for the termination charges it pays its rivals Airtel and Vodafone Idea. Jio, which had earlier promised to keep all voice calls free, said it was compelled to start charging its subscribers. It wanted to recover the 6 paise a minute IUC it pays to other telcos, till the regulator brings the fee down to zero. This heralded a tariff rise in the sector after a few years of competition.
For the first time since Jio's launch, all three private players raised mobile tariffs in a last ditch effort to improve their financial conditions. Hiking the tariff has surely helped the companies shore up their respective average revenue per users (ARPUs).
What happens when big players merge? Doesn't that mean better service?
The last few years have also seen two high profile mergers. Some companies that teetered on the brink of collapse quickly resorted to a merger to regain a foothold. One was a merger between two ailing state-owned companies, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL). The process is currently underway. As per the government, MTNL will operate as a subsidiary of BSNL until the merger is completed. Around 92,700 of their employees opted for a voluntary retirement scheme, one of the biggest in the recent times. The government had announced a Rs 70,000-crore relief package to get the merged entity back on track.
The other merger was between two leading private players Vodafone India and Idea Cellular, which created Vodafone Idea. With the merger, the two players wanted to improve the network and offer customers a better experience, but it barely managed to do it. The merger helped Vodafone Idea beat Reliance Jio and Airtel to become India's largest telecom company with 408 million active subscribers, though it faced a steady erosion in numbers since then. In 2019, a record loss of Rs 50,921 crore for the September quarter shook the company.
What is this Supreme court ruling that people say will impact my bill?
Actually, there is no direct impact. The Supreme Court rejected the telecom companies' demand for re-assessment of their dues, and reserved its order with respect to their plea for a 20-year staggered payment. The court has now made it clear that it was not going to reopen the issue of calculation of the dues. In October 2019, the apex court had ruled that the statutory dues need to be calculated by including the non-telecom revenues in adjusted gross revenue (AGR) of telecom companies. The department of telecom (DoT) had then demanded Rs 1.47 lakh crore from the telecom companies, with Rs 92,600 crore as licence fee and Rs 55,100 crore as spectrum use charges.
Analysts believe that the supreme court verdict could create a duopoly structure (a situation where there will be only two producers or service providers in a market) as it makes matters worse for one incumbent player, Vodafone Idea.
While the other two, Reliance Jio and Bharti Airtel, stand firm, Vodafone Idea is facing severe financial headwinds. The ailing state-owned operator BSNL-MTNL, the fourth player left in the fray, is already a fringe player, with its combined market share having shrunk to 10.6% by March-end.
The court has now refused to entertain recalculation of dues, and reserved the order on the 20-year payout window. The companies are facing an outgo of Rs 1.47 lakh crore on account of licence fees, spectrum usage charge, interest and penalties. Vodafone Idea has only paid Rs 7,854 crore of its massive Rs 50,399-crore dues. Bharti Airtel has to pay Rs 25,976 crore more while Tata Teleservices is required to pay Rs 12,601 crore more.
Vodafone Idea counsel Mukul Rohatgi recently told the Supreme Court that his company would be forced to shut operations if the dues had to be paid upfront. He claimed the Rs 1-trillion worth of equity brought in by its promoter Vodafone Plc is completely eroded.
The supreme court has now directed telecom operators to give details of their bank accounts and financial documents of the last 10 years.
What will happen to consumers if more companies shut down?
Here is one strong player who could slice down the competition while the other player who fought the competition valiantly and came back stronger. The other players are increasingly insignificant, according to analysts.
Typically, options available for the consumer may shrink and they may see a spike in prices if the two players collude and decide to keep up the prices. For instance, take the aviation sector. When Jet Airways grounded, there was a sudden spurt in airfare as rivals rushed in to make a quick buck. But that may be fleeting as it may disappear as demand drops. Also, one would expect that a strong watchdog like Telecom Regulatory Authority of of India (TRAI) will try and protect the consumer.
Updated On: 2020-08-03T11:51:57+05:30