India’s telecom sector is undergoing major stress following a recent Supreme Court order on huge arrears that some firms owe to the government. The total payout to the Department of Telecommunications (DoT) could be well over Rs 1 lakh crore and the two telecom companies, Bharti Airtel and Vodafone Idea Ltd (VIL), may have to shell out a significant portion of this hefty bill. Bharti may just manage to survive the crisis but VIL may not. There was a time, not long ago, when the Indian telecom market had nearly a dozen players, low tariffs and stiff competition among numerous operators which kept subscribers happy. The entry of Reliance Jio Infocomm in 2016 disrupted the market. As a result, from a crowded market dominated by voice services and numerous operators, the domestic telecom market has now become virtually a three-horse race, excluding the lethargic state-owned BSNL. There is a danger that the market could shrink further and become a duopoly, given the existential crisis enveloping Bharti Airtel and Vodafone. The apex court ruled in favour of DoT in a long-standing dispute on the definition of adjusted gross revenues (AGR) of telecom operators. Operators pay licence fee and spectrum usage charges based on AGR and the dispute was over the inclusion of receipts from non-licensed activities such as dividend and capital gains. The SC ruled that DoT’s claims on the definition of AGR as well as on applicability of interest, penalty and interest on penalty were valid. With this, the operators are liable to pay tens of thousands of crores as arrears to DoT, raising a question mark over their very survival.
The court’s order comes at a time when the telecom sector is facing severe financial stress and this may further weaken its viability as a whole. The fact that only two private sector operators remain in service today, of the over 15 operators impacted by the SC order, reflects the sorry state of affairs. The government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry. The interests of consumers will suffer if there is a rapid market consolidation from here, in the wake of reports of the possible exit of Vodafone-Idea. It must be pointed out that telecom companies have made huge investments in developing the sector and providing world-class services to consumers. The cancellation of 122 telecom licences by the SC, following the 2G scam, had an adverse impact on the market with several foreign investors deciding to exit in 2012. In order to prevent the collapse of the telecom market, the government should consider a long-term moratorium on payment of AGR related levies and other concessions.