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Telecom Sector: A Monopoly or Duopoly?
By Vikrant Nirmala Singh (Founder and President - Finance and Economics Think Council)
Every destruction brings an unprecedented change. It is universal whether it is political, economic or any other sphere. Covid-19 is the massive disruption of century. It is going to reshape world in general and India in particular. The pandemic has made a significant loss to economy and it is not clear when the ongoing economic slowdown will end, but its end is going to be a decisive one. This can be decisive in the way that the size and structure of the Indian economy can be completely changed. If we look very closely at the current economic activities, it is clear that small companies are slowly disappearing in the Indian market. The Pandemic of Covid-19 has weekend small business badly. It can also be assumed that in the midst of the ongoing slowdown in the economy, they are not able to survive. It seems that the Indian economic structure is slowly moving towards monopoly or if it is called a partial monopoly. Technically it may be controversial to called an economy a Monopoly, but present situations are definitely giving a clear indication of duopoly (dominance of two companies) market. After the gorilla introduction of Reliance Jio, only Airtel has managed to maintain its position in the market. On the other plate, BSNL is seeking life on a ventilator and Vodafone is upset due to its continuous losses. So, it is possible in the near future that only two telecom companies will survive in the vast Indian market. Moreover, the unresolved Vodafone-Idea's AGR crisis in the wake ongoing slowdown is probably going to kill the competition in the telecom service. The Indian telecom sector is breaking, bleeding and our digital future is blurring.
What is AGR?
AGR is the usage and licensing fees charged by the Department of Telecommunication (DoT) from the telecom companies. This includes spectrum usage charges and licensing fees. The spectrum usage charge is between 3 to 5 per cent and the licensing fee is 8 per cent of the total profit. The entire dispute in the telecom sector has been related to the calculation of AGR. The Department of Telecommunications considers the AGR as computed on the entire income. Accordingly, as of telecom companies include the company's profit as well as the profit earned on the sale of assets and deposit interest. But the telecom companies only want the revenue generated on services to be part of AGR.
In 2005, the Cellular Operators Association of India' challenged the AGR Calculation in the 'Telecom Dispute Resolution and Appellate Tribunal'. The tribunal considered the government to be right and directed all companies to repay the companies considering all the income as part of the AGR. Later the telecom companies challenged this decision in the Supreme Court and according to the judgment on 24 October 2019, the telecom companies will have to pay the dues.
At present, the Indian telecom sector owes a total of Rs 1.48 lakh crore in the form of AGR (Adjusted Gross Revenue) to the Department of Telecommunications. The most outstanding due is of Vodafone – Idea Group that has to be repaid. Their total dues alone amount to Rs 53,000 crore. Bharti Airtel makes a total of 35,600 crores and standing on the cusp of bankruptcy, Reliance Communication makes a total of 21,200 crores. The important thing is that according to the recent Supreme Court decision, Vodafone and Bharti Airtel will have to pay a total of 90,000 crores to the government in every situation. Airtel has already paid ₹ 10000 crores. But Vodafone is still in dilemma. Vodafone does not have a very strong asset base like Airtel and already has an external debt of over 1 lakh crore over it, so it is not feasible to raise AGR amount by additional borrowing from the market.
In a situation, if Airtel and Vodafone pay the dues of AGR, then it is almost impossible for them to make any new & handsome investment in near future. Lack of new investment will ultimately hamper new employment opportunities and the auction of 5G spectrum. Perhaps, this is the reason that Kumar Mangalam Birla has made it clear that if Vodafone-Idea does not get significant government help, it will be left with no option but closing the business.
Along with the market, the telecom companies are also eying on the government. But the government has its own financial discipline and cannot take any macro step because, in this union budget 2020, there has been indications on accelerating and Double revenue collection from the telecom sector. In case of any exemption or relaxation to telecom companies, ultimately the government is going to suffer losses. If the government comes forward to rescue these telecom companies and extends financial assistance, then it may lead to political turbulence. The opposition will surely begin to dominate and question the government by accusing them of playing in the hands of some private companies. Perhaps, this is why the government, despite knowing the truth of the telecom sector, is trying to avoid any unwanted controversy.
India is rapidly moving to be the country with most mobile consumers base in the world. According to the recent official data released by the Telecom Regulatory Authority of India (TRAI), the number of mobile subscribers in India has reached more than 120 crores. India's telecom sector is known as the fastest-growing sector in the world, but the current crisis has turned it into serious thinking. Is it the end of competition in the telecom market in India? If yes, then consumers will suffer the most. In the absence of competition, companies will form 'cartel' and through this, they will decide what will be the preferable service delivery rate in the market.