The Big Picture — Telecom Sector: Challenges & Way Forward

• 05 Nov 2019

Recently, the Supreme Court allowed the Centre's plea to recover Adjusted Gross Revenue (AGR) of about Rs 92,000 crores from the telecom service providers.

• A three-judge bench, headed by Justice Arun Mishra, upheld the definition of AGR formulated by the Department of Telecommunications.
• The bench made it clear that there would be 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 crores till date.
• Cellular Operators Association of India (COAI) has expressed concerns on the financial setback to the already indebted telecom industry.

Cellular Operators Association of India

• It was constituted in 1995 as a registered, non-governmental society.
• It is dedicated to the advancement of modern communication through the establishment of world-class mobile infrastructure, products and services and to deliver the benefits of innovative and affordable mobile communication services to the people of India.
• Bharti Airtel Ltd., Vodafone India Ltd., Reliance Jio Infocomm Ltd. are few of the core members.

Highlights

• The data prices were very high few years back. Huge cost cutting on data and roaming charges was done to bring down data prices significantly.
• Now tariffs in India are one of the lowest in the world, especially data prices. Calls are virtually free.
• India’s number in teledensity was small when the industry was running on the acquisition mode but currently almost 88% of Indian population is on network.
• Globally, Average Revenue Per User (ARPU) fluctuates around 8-9 US dollars whereas in India it is around 1.2 US dollars.
• Recently, Jio has stopped investing in capital expenditure (CapEx) but India still needs investment of at least Rs 7 lakh crores more for better 4G accessibility.
• The current situation proves that private sector is not any better than government sector in providing services.
  • Although Government service providers (BSNL, MTNL) and private service providers (JIO, Vodafone-Idea, Bharati) have equal amounts of assets, loans and equities of the latter are much higher than those of the former.

Capital Expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment.

Challenges

• Unfair Competition: To attract more consumers the telecom companies have been offering lower tariffs, in competition with each other, which do not generate much revenue. This might lead to either no competition situation or monopoly by a single company.
• Infrastructure: Telecom sector has to get 5G spectrum, invest in infrastructure, expansion, technology upgradation etc so this additional burden is a major setback for the industry.
• Current System of Tariffs: Major telecom operators are reporting losses and financial stress. This shows that the current tariff system is not financially viable for telecoms.

Solutions

• Telecom Industry:
  • The telecom industry has to keep the tariff rates sustainably high instead of trying to make them the cheapest in the world.
  • Fair Competition: It should be ensured that there is no cartelisation and no undercutting. Fair competition among the companies should be encouraged.
  • Outcome oriented Investment: All the money which comes in after the government order should be invested in the telecom sector only so that consumers do not need to pay more and the revenues will be stabilized.
  • Technology: India should invest in technology rather than products:
    • India is importing $40 billion worth of telecom products mainly mobile phones every year which is not a feasible option for the future because of very limited foreign exchange.
    • Buying technology will cost more once but will save foreign exchange over the time.
  • Telecom industry has to bring a shift from service oriented investment policies to manufacturing oriented policies.
  • Telecom sector needs to do value addition by tying up with the service providers from education, medicine and entertainment sectors apart from increasing the tariff charges.
• Government:
  • Practical Deadlines: The deadlines should consider current challenges faced by the telecom industry.
  • In order to revive BSNL and MTNL, government has decided to merge them and then provide funds to the merged entity. Same approach should be applied to other private service providers also.
  • The interest collection by government should be done over a longer period of time giving ample time to the telecom industry to come over the financial stress.
  • The government can do away with the penalty and the interest or it can reduce them as well.
  • Government should put the penalty and interest money into capital investment for the telecom industry, to provide availability to equipments and technologies on an equal access basis.
  • Government should look for more avenues of revenue generation and should be equally responsible towards making this whole sector viable.
  • Government should incorporate Make in India in the telecom industry to boost the manufacturing.
• Consumers:
  • The problem in the telecom sector is an evolving problem which needs evolving solutions depending upon the availability of the consumers and their ability to pay.
  • The free data should be cut down to some limit.
  • The segment of consumers which is willing to pay should be charged for the benefits as per their specific needs.
  • Slabs and priorities for different segments of consumers should be set with customer centric and need specific plans and personalisation facility.
• What can be learnt from foreign models?
  • Data has been very rationally planned in the international market and there are various plans suitable for various and specific needs of the people.
  • Telecom sector is tied up with various other commodities like the handset company apart from the operators only.
  • Moving Wi-Fi zones or public Wi-Fi zones in India should not be completely free of cost instead India can learn from the Emirates, Singapore which charges its customers for data after exhausting the limits set by the airlines.

Way Forward

• Telecom sector has lot of segments in itself which create avenues, bring technologies, innovations and employment raising India to the global level.
• To make this industry sustainable and to stop the unfair trade practices and blind competitions, industry itself, consumers and government will have to share the burden together.
• The sector has to look for a holistic approach with convergence to bring the convenience to the customer.
• It is a very strong component in our growing economy and deeply rooted into the system with various allied sectors. New and better ways should be found out for asset optimisation and revenue generation.