By Aishwarya Bagri
On Monday, the Telecom Regulatory Authority of India (TRAI) released its quarterly report The Indian Telecom Services Performance Indicators for the period October to December 2017. The report shows evidence of a decline in the Indian telecom industry. Gross Revenue in the sector declined by 7.95 percent and Adjusted Gross Revenue by 7.52 percent in the quarter that ended December 2017, in comparison to the previous quarter. The year-on-year (YOY) change in AGR and GR both have been negative.
Negative effects on revenue
The license fee paid to the Government declined from Rs. 3249 crore from the previous quarter to 3014 crores for the third quarter of FY 2017-2018, which is a quarterly decline of 4.46 percent and year-on-year drop of 16.04 percent. Even spectrum charges paid to the government saw a decline. The license fee is eight percent of the AGR, and the spectrum usage charge is five percent of the same. Given the decline in both these revenue sources, government revenue will certainly be adversely affected.
These figures suggest that financial stress in the debt-laden telecom sector is a matter of grave concern that and cannot just be ignored. Revenues are falling, and debt is piling up. According to data from the RBI, the telecom sector is Indias largest debtor, with Rs. 4.6 lakh crore payable. Even the Economic Survey has declared the telecom sector is in a ‘severe crisis’. According to the survey, It is important to note that the telecom sector is going through a stress period with growing losses, debt pile, price war, reduced revenue and irrational spectrum costs.
A challenge from Reliance Jo
One cannot deny the significant role of the price war that was triggered by Reliance Jio. Since its operations began in September 2016, the company has been offering extremely cheap services, which has forced its competitors to slash their prices. Furthermore, COAIwhich is the telecom industry bodyhas alleged that TRAI has made certain regulations just to favour Jio at the cost of other operators.
‘Significant market power’, the market term which traditionally included a company’s subscriber base, gross turnover, network capacity and traffic volume, has been redefined to include only the first two. This change has removed Jio from the ambit of SMP, thus freeing it from various regulations. The latest TRAI report reveals that the company’s adjusted gross revenue rose by 26 percent in comparison to the previous quarter, while it dropped for all other companies over the same period; Airtel by 11.5 percent, Vodafone India by 10.3 percent, and Idea Cellular by 10.6 percent.
This is not the only major threat to the industry. An article in the Economic Times and YourStory reveals that 30 percent of what the telco earns is made over to the government in the forms of charges, fees, and taxes. Furthermore, the spectrum charge is also unreasonably high. The price of the surcharge in India is one of the highest in the world. This was meant to be countered by a high average revenue per unit (ARPU), but the ARPU in India is also the lowest in the world, at $2.
Government is reluctant to act
The Government has taken numerous measures to lift the sector out of its crisis but its efforts have not been fruitful. For instance, it formulated the Inter-Ministerial Group to suggest solutions in June 2017. The body even made a number of suggestions, such as slashing the spectrum charges and license fees as well as other levies, but the license fees and spectrum charges have not been cut. This shows that the government is well-aware of the problems that are ailing the sector but is not serious about acting. The reason behind this may be that the telecom sector is the highest revenue generator for the government. Also, Digital India is entirely based on providing cheap internet services to the electorate.
Tata Teleservices shut its business last year, and Aircel has already initiated bankruptcy proceedings, and the state of RCom is not very different. The government must strike the right balance between maintaining revenue and promoting business in India as it goes about fixing the telecom sector.