• News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20

Minhaz Merchant

Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group

More From The Author >>
BW Businessworld

Telecom’s Tangled Wires

With higher ARPUs, that may well suit Vodafone-Idea’s long-term plan to focus on high-end, high-ARPU, post-paid subscribers, positioning itself as a premium service and working its way back to profit.

Photo Credit :

Whichever way the current mess in India’s telecom industry ends, we can be sure of three things: one, the days of ultra-low tariffs are over; two, there will be a private sector duopoly after the dust settles; and three, the government has just shot itself in the foot.

The Department of Telecom (DoT) erred grievously by petitioning the Supreme Court on Adjusted Gross Revenue (AGR). In its haste to mop up as much revenue as it could, DoT has jeopardised the future of mobile telephony in India. With over one billion mobile phone subscribers, the correct approach should have been to clamp down years ago on predatory pricing.

Reliance Jio built its subscription base on the back of unsustainable tariffs. In the process, it has mortally wounded the industry, driven Reliance Telecom into bankruptcy and forced Vodafone and Idea to merge. With the Supreme Court’s AGR verdict, the die is cast. Even if the government works out an instalment scheme for Vodafone-Idea to pay its humongous dues, the joint venture between the Aditya Birla Group and Britain’s Vodafone plc has a bleak future. 

In the end, we could be left with two strong mobile operators – Jio and Airtel – one weak operator (Vodafone-Idea) and one merged MTNL-BSNL public sector unit. The two major private sector operators will eventually raise tariffs – as they have started doing. Without a strong countervailing third private operator, cartelisation of tariffs becomes an attractive possibility. 

Tariffs, of course, are where the government has erred. The Competition Commission of India (CCI) could have acted as early as 2018 to stop predatory pricing. It did not. By allowing the ground to be cut beneath the feet of an independent Vodafone, Idea and Reliance Telecom, the government stands to lose significant revenue. The 5G auctions will be delayed. Spectrum revenue that could have accrued to the exchequer will not. No private – or public – operator has the money to pay the high 5G auction rates the government has proposed. Even Jio has a mountain of debt acquired in its race to become India’s biggest mobile operator. Airtel has wisely diversified in Africa. It is making healthy profits in what is among the world’s fastest-growing telecom markets. But Airtel too is struggling with debt after paying what it regards as its self-assessed AGR dues. 

The key metric in all this is average revenue per user (ARPU). In India, it is between Rs. 108 and Rs. 128 per month – by far the lowest in the world (China’s ARPU is Rs. 504 while Brazil’s is Rs 405). Consider the math of raising ARPU by even Rs. 10 per month per operator. With one billion subscribers between them, telecom operators would garner an additional Rs. 10 billion a month or Rs. 120 billion a year. That’s Rs. 12,000 crore in extra revenue a year. Thus for every rise of Rs. 10 per month in ARPU, the telecom industry would collectively gain Rs. 12,000 crore. The government’s revenue share (5-8 per cent) would increase. 

A healthy telecom industry is good for all stakeholders – consumers, operators and the government. IF ARPUs settle at an average of Rs. 175 per month – still minuscule by world standards – the telecom industry would be in the pink of health. Its annual revenue would have risen by Rs. 60 billion (Rs. 6,000 crore) a month or Rs. 72,000 crore a year. 

Users are unlikely to complain if, by paying an extra Rs. 50 per month, they would get fewer dropped calls, faster data access, higher quality video streaming and better connectivity. The government would benefit not only from its revenue-sharing model but from a more successful 5G auction, perhaps early next year. 5G networks are up and running in several countries. India is a laggard. Reliance Jio’s proposal to develop a self-designed 5G network could be a positive development, giving India a wider choice among 5G network providers.

The government meanwhile is finally trying to untie the Gordian knot. Apart from offering telcos an instalment payment plan and forgiving penalties as well as interest on penalties, it is considering setting up a “stress fund”. The idea is to get banks to lend to distressed telcos on relatively easy terms. Cabinet Secretary Rajeev Gauba heads a committee to sort things out. But putting an additional burden on banks, already reeling under toxic NPAs, will not be met with enthusiasm by lenders who look at the state of the telecom industry with barely concealed alarm.  

Airtel’s Sunil Mittal has said he wants ARPUs to rise to Rs. 200 a month “initially” and then eventually to Rs. 300 a month to restore health to the telecom industry. Airtel’s current ARPU is Rs. 135 per month. An increase of Rs. 65 per month for its 300 million users would increase revenue by Rs. 2,000 crore a month or Rs. 24,000 crore a year. That would put Airtel firmly in the black.

Vodafone-Idea is the sick man of the industry. In a letter to the telecom secretary, Vodafone-Idea’s chief regulatory and corporate affairs officer P.Balaji did not mince words: “At this point of time we do not have the financial strength to pay the balance self-assessed principal, interest, penalty and interest on the penalty. In the present financial situation, we would be in a position to do so only if the DoT and the government can kindly take up the steps we are requesting.”

For users of Vodafone-Idea, the problem is one of uncertainty. The operator has traditionally attracted high-end users while Airtel has the middle market and Reliance Jio the lower end. If Vodafone-Idea ceases operations – though, in the final analysis, that’s unlikely given the stakes involved – portability becomes an issue. Both Jio and Airtel have limitations on how many of Vodafone-Idea’s 300 million-plus subscribers they can absorb per day. It could clinch the argument in favour of the government saving Vodafone-Idea, though the operator’s subscriber base could shrink significantly.

With higher ARPUs, that may well suit Vodafone-Idea’s long-term plan to focus on high-end, high-ARPU, post-paid subscribers, positioning itself as a premium service and working its way back to profit. After all, no one wants to abandon the world’s second-largest mobile telecom market with a tempting upside on future ARPUs.

Tags assigned to this article:
telecom Vodafone idea