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India ranks 2nd in mobile phone customer base worldwide. Additionally, the broadband market in India is the second-largest globally and is growing swiftly. There is a long way ahead, with only 55% of the population covered. However, the telecom sector in India is in a massive crisis. Vodafone and Airtel, part of the Indian telecom oligopoly, are in deep financial trouble and are ordered by the court to pay the massive tax bill in a month. In contrast, the network quality has deteriorated remarkably due to the network provider’s inability to pay for network upkeep and essential balancing investment.
Telecom Sector Turmoil
Today, Reliance possesses a monopoly in the Telecom Sector due to the turmoil that began a decade ago. Let us understand how the oligopoly Telecom market crashed, leaving only one thriving player in the industry.
Beginning of the Turmoil
The telecom sector Turmoil is the result of 1990 Liberalisation. The Government liberalised the telecom sector under the National Telecom Policy, 1994, and issued Licences against a fixed licence fee.
In 1999, the Government gave the option of migrating to the revenue sharing fee model to the licensees to relieve them from high licence fees.
In this model, the oligopoly mobile telephone operators share a percentage of their adjusted gross revenue (AGR) with the government.
The AGR comprised the annual licence fee (LF) and the spectrum usage charges (SUC). The DoT and telecom sector operators set the LF and SUC charges at 8% and 3%-5%, respectively.
However, in 2005, the oligopoly telecom companies disputed with DoT over the definition of AGR. According to Telecom Companies, the AGR includes only the income from the telecom operations. Nevertheless, according to DoT, AGR also comprises non-telecom revenues like interest on deposits, rent, and asset sales.
The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled the case favouring the oligopoly telecom companies in 2015. However, on October 24, 2019, the Supreme Court ruled condoning the DoT by accepting its definition of AGR. As a result, it placed tremendous financial pressure on the telecom companies.
The telecom companies that had a monopoly over the telecom sector had to pay INR 92,000 crores to the government within three months. Previously, the telecom sector companies had paid only INR 23,000 crore based on the TDSAT’s judgement. However, the SC judgement snowballed the figure to nearly INR 93,000 crores, which comprised the entire dues accumulated over the last 15 years with interest and penalty.
The question has changed from who has to concede the ground to who is a no-brainer. There is no light at the end of the tunnel for the oligopoly telecom operators who are finding it difficult to breathe. However, it is not something that the telecom sector could not forecast. The SC order in favour of DoT came after a 14-year-long legal battle. Nevertheless, the bubble time the firms had could not help them create a fund for any payment they might have to make on the final court order.
Entry of Reliance Jio and Its Effects
Over the last few years, the oligopoly telecom sector operators have been bleeding heavily to combat the hugely competitive rate of the newcomer Reliance Jio. In 2016, Reliance Jio arrived with an introductory offer of free voice and data services.
Airtel filed a complaint against Reliance Jio with the Competition Commission of India for predatory pricing; however, the CCI rejected Airtel’s complaint stating that giving access does not come in predatory pricing.
Reliance Jio’s competitive offers left a significant impact on the oligopoly of the telecom operators, and their revenue fell from INR 121 in 2016 to INR 67.39 in 2018 per month per user. After establishing a considerable subscriber base, Jio raised the price to INR 74.38 in 2019. Since last year, Reliance has captured the telecom market rigorously and established a monopoly in the telecom sector.
Steps Taken to Solve the Turmoil
India’s Telecom Sector is proliferating. Thus, to avoid hindrance in growth from this mishap following measures are undertaken.
- In the form of deferred payment, short-term relief will help the company Vodafone Idea and Bharti Airtel face the debt situation. It proves to be a breather of INR 45,000 crore per year for the next four years.
- Further, the deferred payment option will reduce their immediate liability and free the capital for strengthening infrastructure and capacity building.
- Revision of bank guarantee requirements is expected to give increased cash flows for cash-ridden telecom operators. It will also give banks a chance to lend more to the debt-ridden telcos.
The Way Forward
The Government should take the following measures to realise the National Digital Communication Policy (NDCP) in the Telecom Sector and avoid any player’s monopoly.
- Set up an adequate telecom infrastructure
- Set up a favourable environment for the entry of the new players.
- Increase the optical fibre penetration in rural areas.
- Right-of-way permissions should be easily obtainable and cheap.
- Improve policy and regulation for the growth of the existing telcos and increase domestic market investment.
- Promote a favourable environment for the 5G rollout that will impact the Government’s various Flagship programmes like Digital India and Smart Cities.
- Fix the minimum price to limit predatory pricing to prevent price war.
- Reduce the licence fee, which is the highest globally, for supporting the companies’ growth.
- Spend on research and development to make India self-reliant and capable of exporting hardware components like mobile handsets, touch screen monitors, etc.
Conclusion
In this article, we studied how the oligopoly telecom market crashed, leaving only one thriving player in the industry. The telecom sector is not just a revenue generator, but it is an essential service. For example, a 10% substitution from 2G to 3G increased GDP by 0.15 percentage points for a certain mobile penetration level. Thus, doubling data usage can increase 0.5 percentage points in the GDP. Current reforms are a step in the right direction, particularly for the rationalisation of AGR. As a result, a potential boom will hit the telecom sector in the coming decade.
