‘Bruised, Battered And Bleeding’: Telecom Companies Paying For Their Own Sins

Recent days have predictably fetched bad news from India’s telecom sector which, barring a major player, is equally predictably staring into a big black hole that threatens to suck them into, to use their words, “imminent collapse”.

Vodafone Idea and Bharti Airtel have posted staggering losses of Rs 50,921.9 crore and Rs 23,045 crore respectively for the second quarter. The performance of both the telecom firms may not have earned them a place in the list of Indian corporates who can be trusted for delivery of promised services in lieu of the fees they charge, but they have found a place as business entities that have posted historic losses.

Both the companies have pinned their losses to the Supreme Court’s recent ruling on what constitutes adjusted gross revenue (AGR). The court has upheld Telecom Regulatory Authority of India’s (TRAI’s) contention that AGR should include both core and non-core businesses of telcos on which the government’s licence fee and spectrum use charges would be calculated.

This definition had been contested by telcos who went to court in 2005. They have now been asked to pay their dues, as determined by TRAI, along with interest and penalty.

For Vodafone Idea this amounts to Rs 25,680 crore; for Bharti Airtel it is a slightly larger sum of Rs 28,450 crore. These amounts could increase if TRAI were to contest the basis of their calculation. A third company impacted by the ruling, RCom, already burdened with massive liabilities, has long ceased to be a player.

Media has described the current state of the two leading telcos as “bruised, battered and bleeding”. According to an executive at one of the telcos, the seemingly severe blow is no more than “notional accounting loss and not operating loss”. But that has not stopped Vodafone Idea and Bharti Airtel from painting a grim picture of their future as well as the future of the telecom industry in India.

Their potential ‘imminent collapse’ and failure to service debts as well as pay dues to government have been luridly highlighted along with the possible impact this would have on investments and investor sentiments.

The road to limping survival, these firms have pointed out, lies via waiver, moratorium or bailout, or a combination of all three.

The underlying assumption is that consumers, that is the people, must pay for corporate sins of omission and commission irrespective of whether or not they subscribe to the services of these telcos.

A virtual pistol has been placed to the government’s head; the collapse of telecom services, or their being reduced to a duopoly, is not a happy prospect as Prime Minister Narendra Modi pushes for India’s transition to Digital India.

Even as these telcos are busy sending out distress signals, there is no sign yet that they are willing to even consider the possibility that they have only themselves to blame for the mess in which they are today. There is no recognition of failure on their part. Instead, they have sought to place the onus on government to rescue them. Yet, there is no denying the reality that both Vodafone Idea and Bharti Airtel have a lot to answer for, both as business entities and beneficiaries of a liberal telecom policy. There are five indisputable facts.

● First, these telcos failed to provide for the cumulative AGR although it was evident since 2015 when Telecom Disputes Settlement and Appellate Tribunal (TDSAT), after initially opposing TRAI’s definition, joined hands with the regulatory authority. It is disingenuous to claim that the liabilities on account of the Supreme Court’s ruling are either unexpected or unanticipated. The original Department of Telecom (DoT) order on licence fee and revenue share dates back to 2003.

● Second, they were lazy in foreseeing the future — that it belonged to data and not voice. The transition of their services from 2G to 3G to 4G was slothful, halting and made minimal qualitative difference for subscribers. They continued to charge consumers a lot more than they should have and they did not meet service expectations.

● Third, they made minimal investment in technology and hardware, loading what little they had with their market share which was virtually all of the market until Reliance Jio moved in with its aggressive and innovative marketing.

● Fourth, the word innovation, either in services, technology or, for that matter in marketing, escaped their attention although it was writ large in capital letters. Telcos around the world took note, even Vodafone did abroad.

● Fifth, one of them rashly invested in foreign telecom markets instead consolidating its market share at home. The AGR dues that they are now being asked to pay would have been considerably less had their non-core business not been huge.

A sixth indisputable fact could be added to the list: rather than broad-base the telecom industry’s representation on the trade body, Cellular Operators Association of India, or COAI, they converted it into a closed shop cartel to make it difficult, if not impossible, for Reliance Jio to enter a market they believed was theirs alone to share and profit from. Towards this end, COAI distributed voting rights according to revenue shares, an anomaly among industry bodies, to privilege incumbent members.

Instead of pushing for stable policy and an inflexible rules-based regulatory authority, COAI has consistently lobbied to protect the market positions of a few players in the voice market, protect roaming charges for 3G networks and oppose TRAI’s efforts at ensuring Net neutrality. What they had not bargained for is Reliance Jio’s staying power backed by its nimble-footed marketing strategy.

They remained steadfast in their belief that data services would never overtake voice services; Reliance Jio began with the belief that data is the future, voice is passe. It would seem the others could never grasp the many utilities of a miracle chip-driven machine called a smartphone. Reliance Jio began with adding to those utilities via its data-based services.

In brief, they were upstaged by a disruptor with ideas that were in tune with consumer expectations and rooted in the future.

Rajeev Chandrasekhar, one of the early entrants in the newly liberalised cellular telephony sector, says, “The perils and rils of being in the tech space is this, that new technologies, new disruptors, are the new normal. Incumbent legacy companies across the technology space have to work and invest on that basis. No Government policy or argument can protect your business model.”

What this adds up to is that in any technology-reliant business, if you are not on the table then you are on the menu. If Reliance Jio were to rest on its laurels then it too could be upstaged by another telco with newer and more disruptive ideas.

Back in the 1970s and 1980s, Indian corporates would bemoan the lack of reforms and aggressively argued why the economy should be liberalised. This gained momentum with the advent of globalisation via then nascent trade talks. But when liberalisation actually dawned upon India in the 1990s, more by chance than by design to stave off India’s bankruptcy, the same corporates were aghast that they were now being called upon to operate in a market where there were no assurances and competition was the password to survival.

Suddenly, there was a yearning for the much deservedly vilified quota-permit raj. The ‘Bombay Club’ sought a level playing field which was nothing but a demand that the inefficiencies of Indian corporates should not become their liability.

We are witnessing something similar. The ‘battered, bruised and bleeding’ telcos who are hoist with their own petard felt little sympathy when others equally smug and indolent as them went down and became footnotes of the history of the telecom industry.

Those who have come of age after wireless communications via cell phones replaced other avatars of what we now call the ‘handset’, would not remember that a device called the pager once ruled the roost. Paging services companies believed in their invincibility and the impossibility of technology moving beyond a beep followed by a text message.

Nobody remembers either the pager or the companies that provided paging services. Nor would anybody remember that telcos would charge for incoming calls until RCom disrupted their cozy arrangement by introducing free incoming calls.

Similarly, Vodafone had disrupted the market by introducing free text messages in its home base. Yet those who initiated change by undercutting others’ earnings are now reluctant to concede Reliance Jio’s demand that interconnect usage charges should go and the benefit should be passed on to consumers.

There are no certitudes in the telecom space and technology sector. Even if the government were to order a moratorium on dues to be paid by the two telcos, or increase the repayment period, or for that matter waive the fees altogether, that would not materially alter the situation in the absence of the telcos managing their businesses better and more efficiently.

To quote Rajeev Chandrasekhar, “In the wireless technology space today, there is no permanent winner or loser… in technology there will always be a new entrant with disruptive technology, pricing and product innovation that existing incumbents will find it hard to win against unless they innovate, upgrade, change the way of their working.”

That’s the nature of the beast called technology: It serves only those who defy the dictum ‘Nihil Ultra’ or ‘Nothing Beyond’, not those who subscribe to it. Vodafone Idea and Bharti Airtel had willed themselves into believing that there could be nothing beyond them and their services. Reliance Jio was pragmatic and did not indulge in willing suspension of disbelief.

This article was first published on orfonline.org, and has been republished here with permission.