Overview of Indian Telecom Sector and the Crisis it is Facing

Indian Telecom sector, is one of the largest in the world and contributes significantly to growth of GDP in the country.

Telecom sector’s contribution to GDP estimated to be around 6.5% and this sector also provides direct

and indirect employment to millions of people in the country.

Telecom industry is also among the sectors that are experiencing fastest growth, having a CAGR (Compounded Annual Growth Rate) of about 7.3% in the last decade.

A recent study revealed that about ten percent increase in growth rate for internet subscribers can cause over two percent GDP growth.

However, the telecom sector is facing a crisis in recent times. In, the following sections we will look at the crisis and stress this sector is facing and the reasons behind it.

Top Telecom Companies in India

 Following are the leading Telecom Companies by revenue, market share, and subscriber base.

 Vodafone Idea Limited

A partnership between Vodafone Group and Aditya Birla Group, Vodafone Idea Limited is one of the leading telecom companies in the country.

The company holds the largest spectrum among all present operators.

Vodafone Idea Limited, offers data and voice services on a pan India basis covering 2G/3G/4G platforms with 31.5% market share and the highest subscriber base of about 36%.

 Reliance Jio

A wholly owned telecom company, Reliance Jio Infocomm Limited, Jio operates nationwide LTE network and provides coverage in twenty-two telecom circles.

Instead of providing 3G or 2G service, the company uses voice over LTE for providing voice services.

Having a market share of 30.8%, it is the second largest telecom company in the country.

It is the 3rd largest operator of mobile networks globally with a subscriber base of around 323 million.

 Bharti Airtel Limited

It is a telecommunication company that operates in eighteen countries across Africa and Asia.

If we look at subscriber base, it is one of the top 3 service providers globally.

In India, Bharti Airtel Limited offers 2G/3G/4G wireless services, fixed line services, mobile commerce, broadband, enterprise services, and DTH.

Having a customer base of over 403 million, the company has gained a market share of about 27.5%.

 Bharat Sanchar Nigam Limited (BSNL)

BSNL is a public sector unit that offers a comprehensive range of services with a market share of 9.9%. It is quite ahead of its rivals when we talk about basic services.

For example, its wireline phone subscribers are at 11 million, giving it a market share of 51%. In addition, in wireless and wireline spectrum, the company has a broadband customer base of 21.5 million.

 MTNL

In Mumbai and Delhi, MTNL is the major provider of fixed line and mobile services. It was the first company to launch few of the latest telecom advancements such as VOIP, VDSL2, and ADSL2 in broadband.

After this overview of top telecom companies in India,

let us now look at the crisis that has gripped telecom industry.

 Telecom Sector Crisis in India

The Indian telecom sector companies were asked to pay Rs.146 billion or $2.1 billion to DoT (Department of Telecommunication). This payment is to be made as per order passed by a Supreme Court in which it ordered telecom companies to clear the unpaid licensing and spectrum fees or else they will have to face legal consequences.

There is an argument between major telecom firms and the government about how the AGR (Adjusted Gross Revenue) or the way license and other fees being paid by telecommunication firm are to be calculated.

it should base Telecom companies put in the argument that fee charged on income that they earn from their main telecommunication business. However, the Supreme Court has given the ruling that must be calculate fee on their earnings from many business transactions, including sale of handsets and other sources of income.

Because of this verdict they expect it that Vodafone may well go bankrupt and result in around 13,000 of its employees going jobless.

Eventually, there will be two telecom players left, and it is possible that may not have the infrastructure and capabilities to handle the extra load efficiently.

In addition, the effective cost for customers may well go up.

 The Root Cause for the Crisis

National Telecom Policy (NTP) of 1994 resulted in telecom sector’s liberalization and allowed domestic as well as foreign companies to enter the telecom sector.

In the initial stages, DoT allotted spectrum to private companies based on a fixed license fee.  But, in 1999, they gave an option to licensees by the government wherein they could shift to a fee model involving revenue sharing.

In this model the licensees had to pay a certain percentage of gross revenues they were making as spectrum utilization charges and license fees.

The problem started for interpreting AGR. Telecom companies do not agree to the inclusion of their non-operational sources of income into AGR.

In 2002, the telecom operators raised their concerns with TDSAT when government did not listen to their concerns. But, in 2019 the Supreme Court upheld explanation of AGR as laid out by the DoT.

The telecom companies went back to Supreme Court for a verdict review, but the plea got rejected in January 2020.

DoT wants the entire amount due for the last fifteen years to be paid along with penalty and interest.

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 Telecom Crisis and Its Implications

Because of this telecom crisis MTNL/BSNL and Vodafone Idea are slowly moving towards a shutdown. Government is already encouraging MTNL and BSNL employees to take VRS. Similarly, Vodafone Idea is on the verge of bankruptcy.

In case Vodafone leaves the country and BSNL/MTNL stop providing services then nearly forty thousand subscribers will get affected, tariff rates may well increase for subscribers, and competitiveness within the telecom sector will also become a concern for creation of duopoly.

Digital economy relies on telecom sector and if telecom services get disrupted, then it can have a negative effect over growth of the economy.

In addition, government’s plans regarding allocation of 5G spectrum will get affected because of less numb of 5G telecom companies in India.

Apart from the telecom sector and the end users, other stakeholders such as banks will feel the cascading effect of telecom companies such as Vodafone Idea closing their business.

 Why is telecom sector under stress?

As per industry experts, Indian telecom sector is under a lot of stress because of a debt of over four lakh crores. However, on a positive note, government has announced creation of a Committee of Secretaries

that will examine financial stress telecom companies are facing and recommend steps that will help in mitigating the stress.

The committee will also examine telecom industry demands such as allowing telecom companies to pay their pending spectrum fees over the next 2 financial years.

They accept if this demand then it will assist telecom companies avoid nearly forty-two thousand crores of immediate outflow and help improve their short-term liquidity.

The committee will look into demand by telecom players wherein they want SUC (Spectrum Usage Charges) reduction.

They also expect it that the TRAI (Telecom Regulatory Authority of India) may well look into the minimum amount that they allow telecom companies to charge for data and voice services.

Because of entry of Reliance Jio in telecom sector, the tariffs are very low at the moment and both Vodafone Idea and Bharti Airtel want government to intervene and increase the tariffs.

It is yet to be seen whether the court will allow telecom companies to pay their dues over time instead of forcing them to pay everything together.

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