Explained Ideas: What can the government do to revive India’s telecom industry?

Where does this leave the market?

Vodafone-Idea or Vi is the most affected. Its liability is nearly Rs 54,000 crore and even with a 10-year horizon, it is unclear whether this will be enough to prevent a bankruptcy and establish a virtual duopoly. Vi has reported a net loss of Rs 73,878 crore in FY 2020.

Meanwhile, Airtel owes approximately Rs 26,000 crore in licence fee dues. For one of the lowest-priced markets in the world, raising tariffs would be an obvious strategy.

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According to estimates by Jefferies Equity Research, Airtel will have to increase ARPUs (average revenue per user, a surrogate for price) by 10 per cent and Vi by 27 per cent to completely offset the impact of AGR dues.

\This, however, is not a one-sided decision and will depend on its rival response. Given there has already been one round of tariff increase, there is little room for another hike.

What other instruments can one consider to stimulate and fortify competition in Indian telecom without which our $1 trillion digital ambition will remain on paper?

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With reports of network quality deteriorating by almost 20 per cent, the need of the hour is to augment network capacity immediately and be future-ready when 5G comes along. These investments are unlikely given the current financial health of the sector.

“One option could be to put some cash in the hands of operators by abolishing the licence fee based on AGR, prospectively. This could be the much-needed shot in the arm and could be treated as part of the stimulus package for telecom,” suggest Rajat Kathuria and Isha Suri of ICRIER.

“In any case, there seems to be little justification in auctioning spectrum and also levying additional charges,” they argue. “Having introduced spectrum auctions, the government could forsake other forms of licence fee. A nominal administrative fee could be charged instead to administer licences as is the practice in other countries”.