Few more tariff hikes will save telcos from near-certain bankruptcy that govt inaction was leading them to

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Updated: December 3, 2019 1:35:20 AM

A few more tariff hikes will save telcos from the near-certain bankruptcy that government inaction was leading them to

Vodafone Idea, telecom industry, Bharti Airtel, RJio, ARPU, Kotak Institutional Equities, tariff hike, NDA, AGR, Competition Commission of IndiaNot surprisingly, given how it slept through RJio’s below-cost pricing, the Competition Commission of India kept quiet when tariffs were raised, as did the telecom regulator, whose job is to ensure customers don’t get rooked by cartelising telcos.

It speaks volumes for how the telecom industry was brought to its knees that no one alleged cartelisation when, within hours of each other, Vodafone Idea, Bharti Airtel, and RJio said they would be raising tariffs; the first two have already announced 25-40% increases. Not surprisingly, given how it slept through RJio’s below-cost pricing, the Competition Commission of India kept quiet when tariffs were raised, as did the telecom regulator, whose job is to ensure customers don’t get rooked by cartelising telcos. This is not to say that telcos are ripping off customers; how can they when, between the pre-Jio situation and now, the average realisation per user (ARPU) has fallen from Rs 174 per month to Rs 113 while their data consumption rose from 153MB to 10GB, and voice minutes rose from 400 to 700? But, if the government or regulators are not going to examine cartelisation now, when will tariff hikes be seen as collusive; after ARPUs are Rs 174 or 200 or 225? It is ironic, but while competition authorities normally strive to increase competition levels, by driving the industry to bankruptcy—by not cutting rapacious licence fee obligations, and by allowing RJio’s predatory pricing—the government had a big role in the declining competition in the industry.

While it is difficult to prove that the government encouraged the tariff hike, what could have forced this change of heart is that, with Vodafone Idea perilously close to shutting down, the government realised that it stood to lose Rs 200,000 crore of dues, and would have got just a fraction of this in the insolvency courts. And, with Vodafone alone having invested $30 bn, its shutting down—there is still the retrospective tax case!—would scare off most investors.

Right now, if the tariff hike results in an annual ebitda hike of Rs 8,000-9,000 crore each for Vodafone Idea and Bharti Airtel—going by Kotak Institutional Equities’ analysis—this will help keep them afloat even after the Supreme Court’s (SC) Adjusted Gross Revenues (AGR) blow. But, as this newspaper has argued, the SC erred in its judgment since no independent authority had ever examined the government’s view of what AGR must comprise. And, the AGR blow would have been a lot smaller had the government scrapped licence fees in 2010 as it should have. Since, by then, the government was charging an arm and a leg for spectrum, the earlier policy of high annual licence fees had to be stopped; you can’t charge EMI for a flat as well as ask for the full payment upfront. While many in government argue that they can’t scrap licence fees as they will lose revenue, they need to recall how, after the Atal Bihari Vajpayee government slashed telco fees by moving to a revenue-share regime, the government’s revenues soared after a few years; by contrast, despite the high licence fees, government revenues fell from Rs 70,241 crore in just FY17 to Rs 39,345 crore in FY19; and, thanks to the government’s actions, there is still the possibility that it could lose several lakh crore rupees of dues. This is mismanagement—by both UPA and the NDA—on a scale that’s hardly ever seen before.

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