Delaying the inevitable: On relief to telcos

The Union Cabinet’s approval on Wednesday of a relief-cum-reforms package for the financially stressed telecom sector, though verily a step in the right direction, is at best only likely to delay the inevitable. In a tacit acknowledgment of the extent of stress in the sector as well as the far-reaching economic consequences of protracted distress in the industry, the Government decided to offer telecom service providers the option of a four-year moratorium on the payment of outstanding AGR and spectrum purchase dues. This one measure alone is expected to ease the immediate financial pressure on the telcos, especially at Vodafone Idea and Bharti Airtel. The venture created by the merger of the Indian unit of the U.K.-based Vodafone Group Plc and billionaire Kumar Mangalam Birla’s erstwhile Idea Cellular Ltd. had deferred spectrum payment obligations and AGR liabilities that exceeded ₹1.68-lakh crore as of June 30. The Government’s moratorium offer should, at least for now, relieve the burden of finding the funds to service these liabilities at the loss-making telco, giving it the space to focus on continuing to provide vital telecom services to about 27 crore wireless subscribers still with it. However, the woes at Vodafone Idea are deeper and symptomatic of the broader industry-wide maladies that have pared the once more-than-dozen-strong field to just three private players and one struggling state-owned company.

The entry of a deep-pocketed newcomer five years ago and its ‘take-no-prisoners approach’ to tariffs triggered a price war that depressed average revenue per user and bled most legacy telcos operationally into the red. The after-effects of the bruising competitive plunge in call and data tariffs are still being felt by the surviving operators and the issue of a floor price is one among many that the latest reforms completely skirt. To be sure, the Government has sought to address several anomalies in the policy regime including the definition of AGR that had led to the large build-up of dues and protracted and ultimately pointless litigation. Non-telecom revenue will hereafter be excluded from the AGR, a long-standing demand from the telcos. The telcos would also not have to pay any spectrum usage charge for airwaves acquired in future auctions, could share spectrum without incurring any additional cost, and hold the airwaves acquired at an auction for 30 years instead of 20. Several procedural norms have also been simplified. Still, the prospects of the sector diminishing to a duopoly remain high. With Vodafone Group CEO Nick Read categorically telling analysts in July that the firm would not be investing any additional equity into India and Mr. Birla throwing in the towel last month, the Centre’s relief may be too little, too late.

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Printable version | Oct 27, 2021 10:49:12 AM | https://www.thehindu.com/opinion/editorial/delaying-the-inevitable-the-hindu-editorial-on-relief-to-telcos/article36505389.ece

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