Recently incumbent telecom operators declared that they are planning to increase tariffs. Why is this even news? Let’s talk about it.

I am not very old but still remember when mobile phones were new in India. I remember the names like Hutch, Etisalat, Loop mobile, BPL, AIRCEL, MTS, T24, Virgin mobile, and Rcomm were very well-known names. Some of them merged with others, some shut down their business, some got their licenses canceled by the Honorable Supreme court, and some went bankrupt. So the market is very concentrated with three private and 1 Government service provider. Now one out of them is on the verge of bankruptcy. One is Airtel which is successfully standing due to the backing of SingTel and some other foreign funding and due to the management skills of Sunil Bharti Mittal. He invested his capital by setting up a business in Africa and a giant tower company in the form of the Indus tower, setting up Tele sonic networks, and so on. One is the Vodafone idea. Product of merger of Vodafone plc’s India business and Aditya Birla group. Not having any value-added business, except some stake in Indus tower, makes them most vulnerable to this competition. And the third is Reliance Jio. The company was not even a full-fledged telecom service provider around 2009. the company was Infotel Broadband services limited. Reliance bought it in 2010. Due to Reliance Petrochemical’s profitability, Mukesh Ambani kept investing a heavy amount. Another is a network of BSNL and MTNL., one of the best.

Before talking about it, we need to talk about competition and types of markets.

A variety of market structures will characterize an economy. Such market structures essentially refer to the degree of competition in a market. When we check telecom as a market, we can easily say there are many buyers. In such a situation, the question of how many sellers should be there play a key role. We must understand that the Indian telecom market has Telecom Regulatory Authority as a regulator. But due to many reasons, the number of suppliers is reducing. Competition in such a sector is significant as telecom is a commodity. Having less competition makes it worse.

Even before the entry of Reliance Jio, the sector was bleeding. Due to significant debt, a big prize was paid to govt for spectrum. So it was difficult for many companies to survive. What is remaining is completed by govt with so many policy decisions of govt—the best example of Vodafone. Vodafone plc (British Company) bought the Indian hutch business, having a parent in hong kong. Now Govt of India decided to tax it. Vodafone went to court. Court gave the decision in favor of Vodafone. So Pranav Mukherjee, the then finance minister, changed the rule retrospectively.

The second example is the recent decision. But that is of the Honorable Supreme court. Due to the heavy spectrum payment, the companies’ balance sheet is already in bad condition. Plus, the recent decision may affect Vodafone Idea in such a way that their business may completely shut down. Heavy competition, massive debt, and already large payment of spectrum charges make the going concern impossible. So what is that decision?

For using the telecom license, the companies are supposed to pay the amount they choose as REVENUE SHARING. The Honorable supreme court told them to pay a total of 92,641 crores. It is not wrong but came at the wrong time. The decision is applicable to13 companies, out of which ten are out of business. Bharti airtel is supposed to pay 21,700, and Vodafone Idea is Supposed to pay 28,300. That is when both have around 1,00,00 cr of spectrum fee and loan. Plus, Reliance Jio is giving data at such a low price that both are burning cash at a high rate to compete with it. At the same time, Vodafone idea losing customers due to competition and some network issues. Airtel, though defends itself, but the company also loses it at a fast pace.

BloombergQuint Report on the decision of AGR

So let’s come to the million-dollar question of the decision to increase the rate.

What is there to gain? If you wanted to increase tariff, then why not now? Are you waiting for clarity on IUC? or are you just checking the response? Why? Even reliance on Jio also took a hike of 10-11%. Their Rs 399 plan now costs Rs 444, giving customers unlimited calling. So the trend is visible.

I am sure that if Vodafone took a tariff hike, some of the lost revenue would be gained. Also, I understood that the reliance system on Jio could not handle such a huge load. So someday, they also needed to increase the price to keep their network up. Right now, they sold their tower infrastructure to Brookfield asset management, and the tariff hike is coming today or tomorrow.

From my own experience, I believe that losing Vodafone idea is not suitable for banks and even for govt as their revenue is also gone, and failing such income when GST is not paying handsomely is not a good idea.

Let’s see what will happen.