The crisis gripping the telecom industry refuses to go away. It was sparked last October with the Supreme Court (SC) ruling that the Department of Telecom (DoT) is right to levy charges and taxes on earnings from sources other than telecom operations — called adjusted gross revenue (AGR); and even though some like Vodafone-Idea are on the point of bankruptcy, the SC has now reiterated, on the pain of contempt proceedings, that they have to pay up.
The collective claim by DoT on the companies is a mind-boggling `1.47 lakh crore. Bharti Airtel which owes close to `35,000 crore is in an unhappy but retrievable position. It has paid up `10,000 crore so far. It has raised $3 billion recently and has assets it can sell to pay its dues. It can survive. The position of Vodafone is worse. It has piled up dues of `53,000 crore and has only cleared `3,500 crore so far. It has notched up debt of over `1 lakh crore and scored a loss of over `6,000 crore in Q3. With both partners, Vodafone and the Aditya Birla Group, not willing to bring in fresh equity, the company has said it is close to shutdown.
Vodafone going bankrupt is not good for consumers or the industry. A duopoly between Jio and a struggling Airtel will mean poorer services for consumers and higher rates too, so far held down by intense competition. For the industry, it will mean a loss of 13,500 jobs at Vodafone.
REGULATION KILLS
It is strange that a sunrise industry firmly planted in a galloping digital world is in such a crisis. eMarketer estimated that the number of mobile phone users in the country flew from 581 million in 2014 to around 800 million in 2019. Similarly, phone internet users are estimated to grow from 500 million now, to 900 million in 2023. Despite this surge in demand, it is telling of the regulatory system that from 20 companies 2 decades ago, there are just 3 private and one public sector BSNL-MTNL left in the fray, and two of them — Vodafone Idea and BSNL are on the point of collapse.
One suspects too much has been juiced out of an industry perceived to be a golden goose. Besides the phenomenal spectrum auction fees these companies have coughed up over the years, they pay as much as 30 per cent of earnings as part of revenue share to government. It is this perception that led to the Comptroller and Auditor General Vinod Rai to estimate that in spectrum allocation the telecom companies had been undercharged a fantastic presumptive amount of `1.76 lakh crore! This formed the basis of the 2G scam that ultimately led to the SC in 2012 cancelling 122 licenses issued in 2008. All the while, the UPA government view — that spectrum charges cannot be based on what can be squeezed out but what is affordable to consumers and industry – was never heard.
REFLOAT OPTION
As Voda-Idea stares down the barrel of a gun, we must remember it is the government and banks too that stand to lose if it disappears. Vodafone’s debt is estimated at around `1.15 lakh crore that mainly includes spectrum payment dues. Its AGR dues and other liabilities are another `50,000 crore. If it shuts and goes into liquidation, `1.5 lakh crore due to various government agencies and banks will be lost forever.
It is also high time the DoT revise its position on collecting revenue share from non-telecom operations of companies. This quixotic position has resulted in companies like Gas Authority of India (GAIL), Oil India and others being forced to pay up a revenue share on their entire income as they had taken telecom licenses. GAIL, which sells gas, is facing a crippling demand of `1.8 lakh! It is strange how Reliance Jio has escaped considering by the same logic it should be paying a revenue share to DoT for its petroleum refining and other businesses of Reliance Industries Limited (RIL).
As the recovery process gets underway, the government is doing some fire-fighting. There are proposals to lower the revenue share from 2010. It is also possible DoT may defer carrier dues so that the weight of the AGR backlog and concurrent payments don’t hit the company simultaneously. But these are short term measures. A longer term view doing the rounds has suggested the merger of ailing BSNL and Vodafone Idea.
With Vodafone’s 370 million subscribers and BSNL 120 million, the new entity would have a hefty 500 million, ahead of both Jio and Airtel.The government has announced a `70,000 crore package to keep BSNL and MTNL afloat. Other options need to be explored as Vodafone Idea is too large to fail. Its exit will only benefit one operator.
A1.47 Lcr
is the mind-boggling amount claimed by the Department of Telecom as levy charges and taxes on earnings from sources other than telecom operations from companies including Vodafone Idea