Reliance Jio right on COAI; but govt made the mess

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Published: November 1, 2019 12:44:22 AM

COAI can’t represent industry when Jio’s views are totally different, but govt didn’t approach revenue-definition issue with clean hands.

reliance jio, bharti airtelRJio is right when it says in its letters that, as per media reports, the big telcos violated accounting norms by not providing for these possible liabilities that arose from the recent SC verdict.

Given the fragile state of the industry—mounting debt and falling revenues—it is not surprising that an industry association, like COAI, should want to petition the government for relief; it is also quite reasonable for it to try and use every argument to make its case, including saying that if large telcos are forced to shut shop as a result of the Supreme Court (SC) judgment on what comprises ‘revenue’, this could lead to a possible monopoly in the telecom sector which will have adverse consequences.

But where RJio is right in writing to COAI, and also telecom minister Ravi Shankar Prasad, is that COAI cannot possibly claim to be representing the entire cellular mobile phone industry anymore; in which case, its letters over two days are right in saying that the COAI view cannot possibly be that of the industry. Certainly, COAI represented the entire cellular mobile industry at one point, but once it decided to admit RJio as a member, and RJio’s views differed dramatically from those of the other COAI members, the lobby body got less representative. And now, when RJio’s revenues—data is out for all telcos only for Q1FY20—are the highest among all telcos, COAI is wrong to petition the government while talking of “the urgency of the matter to the majority of our Members” while adding that “one of our members has a different opinion on the matters covered in this letter”.

It is a difficult situation that COAI and telcos like Bharti Airtel and Vodafone Idea find themselves in; they can’t ask RJio to leave COAI, and RJio’s presence effectively neutralises COAI as an effective lobby body for the older telcos. But until they sort it out, COAI is really on a weak wicket, and is perhaps hurting the older telcos by making representations that RJio can easily argue it is not authorised to make.

RJio is also right when it says in its letters that, as per media reports, the big telcos violated accounting norms by not providing for these possible liabilities that arose from the recent SC verdict; indeed, their auditors as well as various regulatory authorities are also to blame for not enforcing this all these years. After all, the issue has been pending since 1999 when the Vajpayee government moved telcos from the fixed-licence-fee regime to a revenue-sharing one; since the telcos were in really poor financial shape, they moved to the new regime without freezing the definition of what would be considered to be ‘revenue’.

While the expectation was that telcos would be party to a discussion of what would be included as ‘revenue’ and what would be kept out, the Department of Telecommunications (DoT) approached the matter in bad faith. When the Telecom Regulatory Authority of India (Trai) recommended that non-telecom revenues couldn’t be included in the definition of ‘revenue’, and this was ratified by the Telecom Dispute Settlement and Appellate Tribunal (TDSAT), the DoT went to SC against this. And, in 2011, the SC ruled that Tdsat couldn’t rule on the issue; while the telcos bought time by approaching various high courts on the issue, the matter was effectively decided against them in 2011 itself. So, prudent accounting practices demanded that the telcos provide for these contingencies in their accounts.

And while RJio is within its rights to try and persuade the government not to give the older telcos relief on this issue, it is clear the DoT was wrong in the stand it took; and it is certainly correct to say that neither the Manmohan Singh government nor the Modi one ever bothered to try and fix the issue as they should have. Indeed, if the SC judgment is accepted as the law, the implications of this can be quite serious in other sectors as well.

If a telco makes a profit and invests this somewhere, should it pay a part of the interest/dividend it earns to the government as a revenue-share; it has, in any case, already paid the government a revenue-share on its telecom revenues. After the recent SC judgment, they will have to. But, what if this is applied to oil companies who also pay the government a revenue-share right now? Indeed, there was a furore some time ago when the taxman started levying service taxes on the amounts oilcos paid as their share of expenses to the principal oilco that was in charge of drilling/exploring the well! Telcos will have to pay license fees on gains they make from forex fluctuations but deductions are not allowed when forex losses are made; what if the taxman or the oil ministry were to apply this to other cases?

It is also difficult to buy the RJio argument that, if Bharti Airtel or Vodafone Idea were to shut down, this would make little difference to the “sector dynamics” since there is “vibrant competition including the presence of the PSUs and there is no restriction on entry by new operators”. For one, the PSUs offer virtually no competition and, as this newspaper has argued (bit.ly/2N31Vnd), even after the bailout package, neither BSNL nor MTNL are likely to survive, leave alone offer serious competition; former Trai chief Rahul Khullar’s piece (bit.ly/2ouvrbY) offers other arguments on why the bailout is unlikely to work.

It is obviously true the government shouldn’t be handing out bailouts just because firms are in trouble; indeed, the `70,000 crore—it will be a lot more eventually—being wasted on BSNL-MTNL will also then be justified on the same ground of needing to maintain competition. But surely an intervention is required when the industry is failing because of government action? After all, in the same revenue-definition case, there would be no issue if the government had scrapped annual license fees (LF) and spectrum usage charges (SUC) in 2010 when it started charging the earth—and more—for spectrum; LF and SUC, after all, were introduced when spectrum was handed out for virtually nothing. Make no mistake, the sector’s problems are almost wholly the making of the government—from Manmohan Singh to Narendra Modi—so it is the government’s moral duty to fix this. And till it does, no matter what RJio might say, no new investors are going to come in to set up new networks in the country.

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