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What went down in 2019?

2016 was an indelible year for the telecom industry as it marked Mukesh Ambani led Jio’s foray into the sector which led to industry revenue getting caught in a downward spiral as old players’(Vodafone, Idea, Bharti Airtel) saw their profits and subscriber bases dwindling rapidly. The erstwhile flourished industry narrowed to a handful of players with 2019 opening up new challenging frontiers for the sector. It kept surfacing up in headlines owing to several significant developments, let’s dive into what kept India’s telecom sector abuzz throughout 2019.

AGR blow: Industry caught in a frenzy

The highlight of 2019 was Supreme Court’s judgement on the long standing dispute of computing AGR that had the telecom operators and DoT in a deadlock for over 15 years. Finally, the apex court in October mandated telecom companies to pay their overdues accumulated over the 15 year span during which the matter had stretched as it upheld DoT’s demand that operators include non-telecom service revenues in their adjusted gross revenue; a part of which is then paid by the telcos to the government in license fees and spectrum usage charges. The total amount that DoT asserted as due including the principal, penalty and interest on penalty worked out to be a massive Rs 1.4 lakh crore with about Rs 89,000 crore due from Bharti Airtel and Vodafone Idea alone making them the worst sufferers.

Historic losses for Vodafone Idea and Airtel followed by spectrum charges’ moratorium relief

Amidst the furore that erupted, the two incumbents recorded combined losses of over Rs 74,000 crore in the quarter ending September, with Vodafone Idea’s share being Rs 51,000 cr–the highest ever loss for a corporate in the country. What followed was a round of petitions filed in the Supreme court praying for relief in some form amidst the head honchos of Birla group and Vodafone Plc denying any help to take the two telecom giants out of the plunge. The Centre in November, in what was seen as a measure to allay concerns, deferred spectrum charges due in FY 2019-20 and 20-21 for two years easing off the telcos immediate cash crunch woes. But industry’s demand for relief hasn’t died down as experts believed this measure to be incommensurate as January 23 deadline for paying AGR dues draws closer with SC dismisisng telcos’ plea for relief on January 16.

Sector backtracking on non-tariff regime ends the era of freebies

The AGR brunt made way for unprecedented development in what came as sector’s discourse reversal with telecom operators hiking bundled prepaid tariffs for the first time in three years effectively going back to the pre-Jio era. In order to withstand the severe financial blow dealt in the form of AGR-related dues, Bharti Airtel, Vodafone Idea along with Jio sought tariff revisions effective December with an increase in the range of 25-50%. Industry experts and bodies green signaled the move saying that it is an affirmative step towards improvement in the operating metrics of the industry and could help the telcos close gaps in their balance sheets.

Tariff hikes to ignite recovery?

CRISIL said that the revised tariffs will improve the industry’s average revenue per user (ARPU)–a key performance unit that has been in a slump for the last seven quarters– by about 25% to Rs 145 next fiscal from around Rs 116 in 2019. The impact of these remedial measures, however, will unfold only in quarterly results ending March 2020, prior to which, January 23 deadline for AGR dues still continues to loom over with no relief in sight. While the experts have opined, 2020 could also see a potential fall in mobile user base as many users seek SIM consolidation and opt for a single mobile connection owing to higher tariffs and costlier minimum recharge plans.

Respite for old telcos with IUC scrappage deferred by a year

Another major closure got delivered on the interconnect usage charge issue with Trai deferring the implementation of the zero-IUC regime by a year that was slated to kick off starting January 2020, on account of “inadequate adoption of 4G technologies by consumers and asymmetries in traffic”. IUC –a charge that a call-originating telco pays to the destination operator on whose network the call terminates–is pegged at Rs 6 paisa/min.

The regulator in 2017 had proposed to kickstart BAK (bill and keep) system from January 2020 where the call generating telco as proposed would keep the amount instead of paying it. The deferment has been welcomed by older carriers Vodafone Idea and Bharti Airtel as they are net interconnect revenue earners given most Jio calls end on their networks which makes the latter a net payer. By putting off the immediate January 2020 date set for scrapping the regime, by a year, Trai, for now, has enabled the two saddled operators to continue earning some streams of cash flows.

Government throws lifeline to BSNL-MTNL

The national carrier- BSNL that has traditionally been hailed as a strategic asset for the country finally got the government’s nod on a revival plan set out to save the PSU that has been ringing losses since 2010. In October, the center approved a Rs 70,000 crore revival plan devising BSNL and MTNL to be merged along with other significant measures like allocation of 4G airwaves, asset monetization worth Rs 38,000 crore, Rs 15,000 crore worth of sovereign bonds, and a voluntary retirement scheme for the combined 2 lakh employees that will save about Rs 8,800 crore in wage bills for the two-state majors.

However, the revival package itself does not seem enough to assuage concerns that arise on the implementation front. Questions around the impact of cutting down workforce on the proposed merged entity’s operational caliber, roping in prospective bidders for the monetization process, potential bureaucratic delays in getting approvals among others still continue to echo clear. Further, as recently reported by ETT, the center’s rural mobile connectivity initiatives of about Rs 20,956.23 crore, like BharatNet, Left-Wing Extremism II– among several others are now being considered for open bidding that would allow private players to also bid, which could lead to BSNL being sidelined.

5G road: Auction getting delayed while government nods Huawei’s participation

The commercial rollout of the ambitious 5G technology in India has been in a hang for years now with the delay seemingly stretching over and beyond 2020 as well. While the industry has been in conflict with the government over what it contends as high pricing and scanty availability of the spectrum in the 3.3-3.6 GHz bands, the financial knockout on account of AGR has effectively made the operators incapable of bidding within this fiscal.

Even though Airtel, Vodafone Idea, Jio, and BSNL submitted applications to conduct field trials with DoT on January 15, industry experts still see 5G coming to India by 2022 since telcos having their balance sheets badly bruised lack monetary headroom to bid for the final auctions.

In contrast, just two days before the new year, on December 30, the government allowed Chinese player Huawei (read all vendors) to conduct field trials in partnership with the telecom players. The move came after India’s prolonged silence over Huawei’s participation in 5G deployments in light of the United States pressing India to bar Huawei from deploying the network. India, however, finally took a position on the issue as it juggles to maintain strategic balance with two of its major trade partners–China and the US.

2020 begins with demands for aid as AGR payments due to date approaches

SC in a closed hearing on January 16 dismissed Airtel, Vodafone Idea, and Tata Teleservices’ plea that they had filed back in November asking the court for a review of its October AGR ruling. Airtel and VIL have said they are likely to file curative petitions with January 23 due date impending insight. The rejection to extend any help to carriers could potentially lead to a two-player industry, analysts believe. VIL being left in the lurch could be seen exiting the industry as KM Birla has previously said.

Tariff revisions are believed to take the sector towards recovery, however, more clarity on where exactly the industry will be headed will come post-January 23 deadlines of paying AGR compensation.

Additionally, ahead of the Union budget coming on February 1, the industry which is being weighed down by multiple taxes and levies has reportedly asked the government for aid in the form of reduction of regulatory levies, taxes, and license fees with lower interest rates to access credit. Demands for the removal of GST from license fees and spectrum usage charges have also been made.