Telcos should rationalise tariffs and increase investment
The latest announcement by Reliance Jio that all voice calls from its network within the country would be free from January 1 due to a discontinuation of the interconnect usage charge (IUC) could intensify competition in the financially stressed telecom sector. As distinct from an expected tariff hike by telcos, 2021 is starting off on the promise of freebies, thereby setting the same tone as that of the year gone by. Clearly, the signal from the largest telecom player is that a tariff hike can wait. That optic may not be positive for an industry that needs to invest in the upcoming spectrum auctions, including in the cutting-edge 5G technology this year.
As things stand, the coming year looks challenging for the telecom sector, where losses and piling debt have been a constant through 2020. The adjusted gross revenue (AGR) liability, which meant a payout of Rs 1.47 trillion in dues by some 15 companies (many of which have shut shop or sold their business), played out as the biggest hurdle for the industry, pushing Vodafone Idea to the brink of bankruptcy. Although in September, the Supreme Court relaxed the terms of paying the AGR dues and telcos have been able to raise funds in the meantime, the industry should not return to the path of disruptive competition and revenue erosion all over again. Also, it must invest significantly to make the networks robust at a time when dependence on telecom data is extremely high due to the pandemic.
To be able to support the extraordinary digital demand, telcos will need to participate in the 4G auction early 2021. While some companies will require to fill in the spectrum gaps they have, others may bid aggressively. Later in the year, for 5G auction, most players are strategising on the way forward. India is expected to be a key player in 5G, though the industry has raised concern over the high reserve price recommended by the Telecom Regulatory Authority of India. The regulator should review its earlier recommendations on 5G auction to lower the reserve price so that 5G is accessible and affordable. It’s all the more important as telcos will have to spend more on networks with Chinese vendors put on the no-go list by the government.
However, the regulator and the government alone cannot set the house in order for telcos. They have to bite the bullet and rationalise tariffs to make the business financially sustainable and of quality. That is the only way to ensure that calls are made without the signal dropping while virtual classes and business meetings can proceed seamlessly without data connection breaking off. Bharti Airtel Chairman Sunil Mittal had started a debate on tariff hike a few months ago, citing extremely low rates in India. The contrast is striking: A monthly tariff of $2 on average for 16 GB data in India versus $50-60 in some other markets such as the US and Europe. More recently, Mr Mittal had said the largest player (Jio) must take the lead in increasing tariffs. Vodafone Idea’s Ravinder Takkar followed up saying his company never shied away from being the first one to raise tariffs. The wait is on as the year 2020 is over without a single tariff hike. The silver lining is that data usage is projected to remain high in 2021, a positive for the industry despite the odds.