Apart from connecting and transforming the lives of over a billion Indians, ICT and telecom have fuelled the Indian economy in terms of investment, job creation and revenue generation, accounting for 6.5 per cent of the GDP. The telecom sector continues to be the growth engine of the economy. However, in recent times, the sector has claimed to be in a crisis. In my view, the sector is repeating the same mistakes it had made earlier, and is heavily relying on a campaign aimed at a bailout by the government.
To make the stance clear, the current competitive pressures on the two incumbents, Bharti Airtel Limited and Vodafone Idea Limited, do not represent a crisis. The Supreme Court judgment ordered Bharti Airtel and other legacy telecom companies, including Vodafone Idea Limited, to pay their legitimate old dues to the government. These dues arise from a long-running dispute between the sector and the state on how to calculate the government’s share of revenue. The Supreme Court order ruled in favour of the government on revenue share, and on dues to be paid by the telecom companies.
In my view, there are mistakes that the telecom companies have committed:
- First, they were not precise in foreseeing the future — that the age belonged to data and not voice. The transition of their services from 2G to 3G to 4G was slow and made a minimal qualitative difference for consumers. They continued to charge consumers more than they should have, and they did not meet service expectations.
- Second, they made minimal investment in technology, which was virtually taken over by Reliance Jio with its aggressive and innovative marketing.
- Third, I have consistently maintained, back from when I left the sector in 2005, that telecom companies have not really done their bit in improving the regulatory environment in India. It has been 25 years since the first Indian telecom company was given a licence.
Even as these telcos are busy sending out distress signals and have sought to place the onus on the government to rescue them, there is little elbow room for the government to ease the burden on telcos. However, what the government can do in this specific issue of the Supreme Court order is to take a slightly more patient view of recovering the money, instead of demanding it immediately. I would be very supportive of such a decision because I believe if that is done, there is absolutely no reason why the industry deserves any more favours or a “bailout package”, requesting a relaxation on spectrum payments, airwave usage charges and rural connectivity obligations. I have said before that there are no certitudes in the telecom and technology space.
I think one of the biggest disservices that Indian telecom companies have done to the sector is that they have not played a part in helping build a strong, robust regulatory framework. Such a framework would have solved any disputes that required adjudication between the government and telecom companies, or among telecom companies, or between consumers and telecom entities. Even today, the government has to intervene on basic issues like quality of service.
I am frankly disappointed that these big multi-billion telecom companies are seeking a bailout from Indian taxpayers. Telcos, instead of being mature and responsible stakeholders in developing a strong, credible regulatory framework, continue to try and manage policy through public relations and politics. Telcos seeking a debt bailout forget that under the Insolvency and Bankruptcy Code, even if they default on their debt, the law prescribes an insolvency resolution process with creditors taking over and administering the business before selling it as a going concern to new shareholders.
So, the sensible way out is to recapitalise. They have to raise more equity capital and pay their debt. They need to rebuild their business plans and models, and compete hard with current and future competitors.