The rising spectre of a telecom monopoly

With its gross debt as of March 31, 2021 positioned at ₹1.8 lakh crore and losses within the previous quarter totalling greater than ₹7,000 crore, Vi (former Vodafone Concept), as soon as India’s largest telecom firm by way of subscriber base, is observing chapter.

In a last-ditch effort to win state assist to outlive, Kumar Mangalam Birla, the Chairman of Vi, wrote to the federal government in June, providing at hand over the Aditya Birla Group’s near 27 per cent stake in Vi. He later additionally stepped down as Chairman of Vi, as if to point out his supply was credible.

The ‘shares at no cost’ supply was contingent on an official rescue bundle that would come with revisiting the corporate’s adjusted gross income (AGR) legal responsibility, saying a moratorium on spectrum fees and getting the regulator to set ground telecom tariffs above the low ranges to which they’d fallen due to the predatory worth conflict launched by Reliance Jio.

The corporate’s debt included spectrum cost obligations exceeding ₹96,000 crore, AGR dues of near ₹61,000 crore and debt to banks and monetary establishments of round ₹23,000 crore. A reprieve on funds within the first two of those liabilities offers the corporate a combating probability to stay in enterprise. Birla is clearly making an attempt to toss the ball into the federal government’s court docket, making the latter not less than partly accountable for addressing the issues {that a} Vodafone closure would create for the corporate’s near 280 million present telecom subscribers.

Furthermore, if all these subscribers migrate in a single day to rivals Airtel, Reliance Jio and the general public sector MTNL-BSNL mix, service high quality is sure to be adversely affected for all subscribers. The federal government wouldn’t need that and can be below some stress to reply.

Success story

For the federal government the priority is the credibility of the post-reform telecom coverage, which has been by means of many iterations through the years. Opening up the telecom sector to personal operators is seen as a hit for not less than three causes.

First, it has given the federal government enormous revenues within the type of license charges and spectrum fees, partially serving to to mitigate its fiscal disaster.

Second, telecom service tariffs have fallen dramatically (Chart 1), with knowledge tariffs among the many lowest on this planet and voice visitors using on knowledge at no cost.


Third, regardless of nonetheless pervasive digital inequalities, India’s telecom subscriber base and knowledge consumption have elevated dramatically. The trade’s subscriber base has greater than doubled from 562 million in finish December 2009 to 1.2 billion in Could 2021.

These ‘successes’, nevertheless, are additionally the supply of the federal government’s downside.

The competitors amongst non-public operators to get a foothold within the telecom market meant that on the one hand they bid enormous sums to win restricted licences and scarce spectrum, and on the opposite joined a worth conflict to win subscribers.

The tariff decline turned precipitous after Reliance Industries (which was earlier excluded from the telecom sector due to the phrases of the empire cut up between the feuding Ambani brothers) entered the enterprise by means of Jio in 2016.

Jio’s entry

Reliance Jio had enormous monetary clout and didn’t have legacy issues like put in earlier technology applied sciences and disputed AGR dues that had gathered through the years. It launched a predatory worth conflict to rapidly win and increase market share, which led to falling common income per consumer (ARPU) (Charts 2 and three).


Tariff cuts neutralised the good points by way of subscriber base and utilization triggered by these cuts.

The net results of the mix of excessive licence and spectrum prices and low revenues was that investments in telecom infrastructure lagged, affecting the service high quality of incumbent suppliers.

However extra importantly, the trade skilled steady shakeout, with the variety of operators shrinking to successfully three within the non-public sector (Airtel, Jio and Vi) and two within the public sector. The potential exit of Vi indicators that the shakeout remains to be not over.

A corollary of that is rising focus within the trade. Within the final quarter of 2009, the three prime gamers within the trade — Bharti Airtel, Vodafone and the Anil Ambani led Reliance Communications — accounted for 54.8 per cent of subscribers. That proportion fell subsequently however remained above 50 per cent until quarter ending December 2015.

However then a dramatic transformation started. First, Reliance Communications exited from the market as a result of it was bleeding losses and was a part of a bunch struggling attrition. Second, Vodafone’s merger with Concept in 2018 noticed the subscriber base of the then second largest player within the trade soar from 213 million to 419 million between 2012 and 2018, making it the main player by way of subscriber numbers.

A worth conflict

Lastly, Jio’s entry into the market and its price-war-led scorching tempo of enlargement made it a part of the highest three, with a steep rise in its subscriber base from 72 million on the finish of 2016 to 439 million in Could 2021.

Consequently, the subscriber share of the highest three gamers rose from 49 per cent at finish 2016 to 89 per cent in Could 2021.

Three-fourths of that 40 share level improve within the subscriber share of the highest three was on account of Reliance Jio.

Its share rose from 6.3 per cent at finish 2016 to 36.3 per cent in Could 2021, nicely above Airtel’s 29.5 per cent share, making it the dominant player.

This fast rise in Jio’s market share is unlikely to taper off, with extra subscribers launched by Vodafone’s exit. The battle for market shares might nicely proceed, and as of now Reliance Jio has a lot deeper pockets.

That may have an effect on the relative tempo of deployment of 5G expertise, with implications for future market shares. Strapped for funds due to AGR dues and spectrum funds, Bharti Airtel has referred to as for a maintain on 5G spectrum public sale, because it can’t lay out the infrastructure quick sufficient.

Not surprisingly Sunil Mittal, the Chairman of Bharati Airtel, is supporting Vi’s plea for state assist, probably hoping that the federal government would give in to the three calls for of Birla on AGR dues, spectrum funds and a ground tariff, to forestall the aggressive progress of Reliance Jio from pushing Airtel down as nicely.

If Reliance does exploit its present place of energy to ascertain a close to monopoly place out there, there are a number of challenges it could actually pose. The least of them is a pointy rise in tariffs within the medium time period, adversely affecting shoppers.

Extra vital is the management that Jio would set up over the circulate of knowledge. Reliance Industries is a conglomerate that has diversified into areas from e-commerce to offering varied digital providers, together with cinema, news, music and retail.

If the mother or father firm has a monopoly over the pipe by means of which these providers are delivered, there are a number of methods wherein it could actually stifle the competitors.

Monopoly is not any extra a query of pricing to generate super-profits on the expense of the patron. It’s the skill to stamp out the competitors and stop entry in dawn sectors by utilizing dominance in an current one. That’s the energy of platforms comparable to Amazon, Google and Fb. With management over the means by means of which knowledge is delivered, Reliance may also purchase powers that may stifle the competitors. It’s to be seen whether or not the federal government would step in to cease that.

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