Story Of The Week

Tussles In The Telecom Sector

Recently, on the 24th of October, the Supreme court has held its decision that all the telecom operators together must pay a consolidated sum of around 92000 crores to the government. Out of this, more than 50% of the sum is to be borne by just 2 service providers viz Airtel and Vodafone.

Why are these telecom companies suddenly asked to pay such a hefty sum to the government? Which company is cool with the ongoing tussle? What could be the potential impacts in the telecom space?

Let us first breakdown the issue to understand the murky picture in the telecom space.

Clash Of Clans- The Government And The Telecom Companies

How does Telecom operate in India? In Telecom space, our entire country is divided into “22 circles”, just as we have “states” for administration. For any Service provider to operate in our country, it is required to obtain a license and a spectrum from the government. The Government of India usually conducts an auction to sell the spectrum and companies make their bids. The first such auction took place in India in the year 1994.

1994-1999→  In 1994, the government decided to charge a fixed fee for license and spectrum every year. In the 5-year period, many companies were not able to pay the fixed fee charged by the government and hence they sought after a bailout from the government. As a long-term solution, the government decides to charge the spectrum as a percentage of Adjusted Gross Revenue (AGR) viz 3-5% of AGR for License and 8% of AGR for Spectrum, every year. So, what is the issue then? The fight between the 2 parties arouses in deciding the definition of its Adjusted Gross Revenue, as to whether AGR should be just the “Revenue from operations” or should it include “Other income” as well. As it is obvious, the telecom operators would want the AGR to be Revenue from Operations alone, as they would want to pay a lesser fee to the government whereas the government wanted it otherwise.

2007-2019 →  The case was taken up to the court in 2007 and after clearing all the levels of courts, on October 25, 2019, the Supreme Court held that the Telecom operators could not be given any relief with regard to pending license scheme fees. The court has not given any timeline per se but the dues are too heavy on the already thrashed telecom operators.

Pending Fee breakup

Telecom Companies Amount due(in crores)
Vodafone-Idea 28308
Airtel 21682
Reliance Jio 13
Companies that have shut down  
Reliance Communications 10456
Aircel 7852
Tata Teleservices 9987
Others 14343
Total 92641

Will Merging PSUs Decrease The Woes In This Sector?

The telecom minister recently announced a revival package for the telecom PSUs namely Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL). With speculation going on that government may follow the path of disinvestment to make the firm competitive, the announcement has clarified that the government is not taking the path of disinvestment. The Minister stated that both the firms are strategically important for the nation, as they provide a major infrastructure in border regions and because of the service they provide for the military and during natural disasters.

The revival package includes the merger of MTNL with BSNL. BSNL is an unlisted company while MTNL is listed, till the merger process is completed MTNL would serve as a subsidiary to BSNL. The package also includes an infusion of approximately 30000 crores into the entity, out of which 15000 crores would be raised through sovereign bonds. It also includes monetization of assets of firms worth 38000 crores.

The package also incorporates an allocation of 4G spectrum to BSNL at 2016 prices to make the firm more competitive and profitable. A significant part of the decision involves the Voluntary Retirement Scheme (VRS) for the existing employees of BSNL and MTNL who are above the age of 55 and a half. The government clarified that the scheme of VRS would be made attractive by offering 125% remuneration to the employees who opt for VRS till the age of 60.

The step taken by the government is at a crucial time when the telecom industry is going through a crucial time, with several issues ranging from regulations to the introduction of 5G services. The step to revival is a forward step, and it recognizes that BSNL still serves as a ” national asset”. 

Telecom-ani

Source: Times of India

How Does IUC Play A Role In This Mess?

Interconnect Usage Charge is the amount that an operator has to pay for outgoing calls made to other operators. For example, if a Jio customer makes a call to a Vodafone Idea customer, then Jio has to pay IUC to Vodafone Idea. But why is such a charge needed? Because of the cost that goes into managing the 2G voice network, which is less efficient than VoLTE (voice calls using 4G networks). TRAI has been trying to bring down the IUC with the last cut of 57% announced in September 2017 which brought down the rate to 6 paise per minute, prior to this the rate was 14 paise per minute. TRAI was considering moving from an IUC regime to a BAK (bill and keep) regime in which there would be no charge for inter-operator calls, it believed that reduction of IUC will force operators to setup IP based network. Telecom operators like Vodafone Idea and Airtel were not pleased with this move. Airtel considered this as a move that heavily impacted its revenue because although it had attained 94% coverage in 4G network, its core base still depended on 2G network for calling. Almost 67% of Airtel customer still uses a 2G enabled handset because they find 4G handset expensive.

As the deadline for IUC was approaching and the BAK regime was supposed to kick-start from January 2020, TRAI send out a consultation paper on Oct 16th, for finding out if there is a need to shift forward the date for removing mobile call interconnection charges. According to data released by TRAI, Vodafone Idea incoming calls stood at 59% while outgoing calls were at 41%, Jio’s incoming stood at 35% while outgoing was at 65% and Airtel’s incoming was at 55% while outgoing was at 45%. Since interconnection charges were paid on outgoing calls, it can be easily identified that Jio, which has the highest percentage of outgoing calls, would benefit the most from a regime change.

Following the reconsideration from TRAI, Jio has started charging its customers 6 paise per minute for calls made to other networks. Additionally, Jio decreased the ring time for a call to 20 seconds in order to avoid paying the IUC. Because a 20-second ring could easily turn into a missed call, the other operator would end up paying the IUC from a callback. This move was followed by criticisms from Vodafone Idea and other private players, which led TRAI to interfere and put a 30 seconds standard ring timing for a call.

trai-iuc.jpg

Source: Economic Times

Conclusion

The tussle going on between government and private firms and also between the firms is not at all beneficial for the Industry. India is the world’s second-largest telecommunications market, it provides a plethora of opportunities such as job creation and technological advancements. The regulators in the industry along with support from the government needs to assure the establishment of stability in the sector to reap the total potential that the industry possesses.

References

  1. The Hindu
  2. The Wire
  3. Live mint
  4. Business Standard
  5. Economictimes

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