India's telecom industry might have taken a first crucial step toward revival with announcements that tariffs will rise in December and that spectrum payments will be deferred.
All the major service providers, including Vodafone Idea, Bharti Airtel, Reliance Jio and Bharat Sanchar Nigam Ltd (BSNL), say they will raise fees. At the same time, authorities have given a much-needed breather to operators by allowing them to pay for spectrum later than a previous demand.
Vodafone Idea and Airtel -- which have been under pressure since a court decided they owe authorities billions of dollars under so-called Adjusted Gross Revenue (AGR) rules -- were the first to announce price rises. They were followed by Reliance Jio, India's youngest and most aggressive operator. The full extent of price rises is unclear right now. (See Indian Telecom Industry Still in a Tough Spot.)
"Like other operators, we will also work with the government and comply with the regulatory regime to strengthen the industry to benefit Indian consumers and take measures including appropriate increase in tariffs in next few weeks in a manner that does not adversely impact data consumption or growth in digital adoption and sustains investments," said RJio in its statement, which came after it recently increased tariffs and blamed high Interconnect User Charges (IUC) for that move.
An increase in tariffs at this juncture bodes well for the overall health of the industry. The stock market also reacted positively, with all three companies recording an increase in share prices.
India's operators continue to grapple with mounting debts while profits are squeezed by falling ARPU (average revenue per user). Vodafone Idea and Bharti Airtel are posting losses, with RJio the only service provider to post a profit in the last few quarters.
The Telecom Regulatory Authority of India (TRAI) is also planning to start a consultation about pricing in the sector. It seems likely to propose setting a base rate that operators will not be allowed to undercut. This might be the government's way of guarding against a potential monopoly or duopoly.
But the AGR ruling has clearly piled pressure onto the ailing Vodafone Idea, forcing it to deny suggestions it is on the verge of quitting India. Any such exit would obviously come as a blow to competition and its possibility seems to have awakened authorities to the dangers. (See Vodafone Denies Plan to Exit India .)
"[The] sector is highly capital intensive with fast-changing tech cycles that require continuing investments," said Airtel in a statement issued last week about its own pricing move. "It is, therefore, extremely important that industry remains viable to support the vision of Digital India [Government of India initiative to promote the use of digital platforms]. Accordingly, the Company will hike prices from December."
A breather for telcos
The government has also indicated it will defer payments for spectrum dues by up to two years to provide some relief to the sector. It has also extended the number of instalments from 16 to 18.
"Department of Telecommunications will give an option to the Telecom Service Providers (TSPs) to defer payment of the spectrum auction instalments due for 2020-21 and 2021-22, either for one or both years," said a government statement. "These deferred amounts will be spread equally in the remaining instalments to be paid by TSPs."
While this move should benefit all the telcos, it will be especially welcome to Vodafone Idea and Bharti Airtel, which posted record losses in the quarter ended September 2019. The deferment of spectrum payments should help to bolster cash flow.
It will also ease pressure on the banks, which have provided loans of $16 billion to India's telecom industry, including significant amounts to Indian service providers. There is now a possibility the government will drop penalties and interest fees on due payments.
From the perspective of India's service providers, the twin measures of price increases and deferred spectrum payments are obviously positive steps. The pricing move is a rare instance when arch-rivals Airtel and RJio are on the same side. It remains to be seen how long this moment of camaraderie will last.
— Gagandeep Kaur, contributing editor, special to Light Reading