18th November – Crossed wires – On telecom industry crisis

Two leading and important players in the telecom industry — Bharti Airtel and Vodafone Idea — have reported historic losses in the second quarter of this fiscal. Vodafone Idea has declared a loss of ₹50,922 crore while Bharti Airtel has reported a loss of ₹22,830 crore.

Details of the woes –

  • The losses were due to provisions that the two companies had to make following an adverse verdict in their Supreme Court battle with the government over the definition of ‘aggregate gross revenue’.
  • The two companies have also warned that if the government does not offer them relief on the demand to pay arrears of revenue share along with interest and penalty, adding up to about ₹80,000 crore between them, their very existence as a going concern will be in doubt.
  • In short, what the companies are saying is that they would collapse; Vodafone, in particular, has said that it will have no option but to exit India. It is true that the industry in general — minus Reliance Jio — and Bharti Airtel and Vodafone Idea in particular, are under severe stress and do deserve a helping hand from the government.

Questions remain –

But the question to ask here is: why did they not provide for the liability in their balance sheets over the years? Conservative accounting demands that contingent liabilities be provided for. The sudden pressure on their financials could have been avoided if they had made a provision in their balance sheet for the liability stemming from a possible adverse verdict in the case.

What can be done?

A Committee of Secretaries headed by Cabinet Secretary Rajeev Gauba is studying ways in which the telecom industry can be bailed out. While one waits for what this committee will come up with, the fact is that the industry needs another round of reforms right away.

  • The government, which appropriates about 30% of the revenues of each player through various levies and taxes, needs to revisit some of the policies framed by it earlier.
  • The most important issue is addressing the validity of a licence fee in the form of revenue share. This was set when spectrum was allotted and not auctioned. With the government now collecting revenues upfront in the form of spectrum auction fees — which some feel are unjustifiably high — there is little justification for a licence fee as well.
  • There is also the issue of interconnect usage charges to be settled. The telecom regulator is adjudicating this dispute right now.
  • Talking of the regulator, the government also needs to look into the fairness of regulatory policies and approaches and ensure that they are unbiased.

Conclusion –

The telecom industry is crucial to India’s next wave of growth through digitalisation and the government should not be blinded by short-term revenue considerations that imperil long-term prospects.

SourceThe Hindu

QUESTIONThe telecom sector of India is in distress but the concerns are not merely pointed towards one angle, hence, it needs diverse portfolios to be addressed simultaneously. Discuss.

Leave a Comment

Your email address will not be published. Required fields are marked *