Vodafone Idea not shutting down. Modi govt can ill afford it

Both Vodafone Idea and Airtel are losing customers at a rapid rate and Reliance Jio is gaining at their expense.

Representational image | Customers talk on mobile phones outside a Vodafone India store | Bloomberg

The war in India’s telecom market isn’t over tariff plans or advertising. It is more like a war of words. And Vodafone-Idea is suggesting it may shut shop. The prospect might appear like a windfall for Reliance Jio, but the Narendra Modi government cannot afford this.

Aditya Birla Group chairman Kumar Mangalam Birla last week said that he does not want to throw good money after bad in his wireless telecom company, Idea Cellular, anymore until the company gets relief from the Modi government.

Vodafone has been repeatedly crying hoarse about the high price of spectrum in India. After the recent Supreme Court order, Vodafone Plc CEO Nick Read spoke about shutting down its India operations. He had to, however, take back his words after the Modi government objected to the statement.

When Vodafone and Idea joined hands in August 2018, they became the largest telco in India with more than 400 million subscribers. But it did not take long before the enthusiasm of being the number one telecom brand evaporated. A little over a year later, the churn in the company’s subscriber base tells the story. Monthly subscriber data released by the Telecom Regulatory Authority of India (TRAI) for September 2019 shows that the gap between Reliance Jio and Vodafone Idea could be bridged in the next few months. Both Vodafone Idea and Airtel are losing customers at a rapid rate and Jio is gaining at their expense.

That is why Vodafone Idea’s top bosses have been suggesting that the company could shut down its networks. But could they do that, in the face of mounting losses? It seems highly unlikely since the intensity of competition has tapered off.

The Modi government gave the telecom companies some relief by deferring the payment of dues ordered by the Supreme Court on October 24. The two-year lifeline was the first indication that the government was taking a soft approach on the issue.

A little after the government announced the relief, for the first time in the last three years, telecom companies Vodafone Idea, Reliance Jio and Bharti Airtel raised tariffs. A 42 per cent increase in tariff for prepaid subscribers suggests that the worst may be behind for the industry.

A soft policy and a market which could absorb a price hike is indication enough that a company could continue to be in business.

But it would also be in the interest of the Modi government to not let any more of the wireless telecom companies fail. With about 120 crore subscribers as of September 2019, India’s telecom sector has for long been the cash cow for the government. As telecom tariffs rise, the government could reap the rewards of higher revenue share and higher share of taxes too.

Driving economic activity

For the financial year ending March 2018, India’s telecom industry paid more than Rs 15,000 crore in taxes to the Modi government, including 8 per cent of their adjusted gross revenue as licence fee and 3-6 per cent as spectrum usage charge (SUC). Consumers pay 18 per cent GST, which, with 100 crore subscribers, adds up to nearly Rs 1,800 crore every month. Nearly 90 per cent of these subscribers are prepaid customers; when they recharge their phones every month, the tax received against each recharge gives the government great insight into the pulse of economic activity in the remotest part of India. For policymakers sitting in Delhi, no other economic activity gives such real-time insight.

The telecom sector has seen the highest foreign direct investment (FDI). According to TRAI estimates, Rs 1,85,639 crore in FDI has been made in the telecom sector in the last two decades. Clearly, it is a success story that any country would love to showcase.

The telecom sector could also be the platform for a vibrant digital economy of tomorrow. With e-commerce sales expected to hit US $120 billion (about Rs 8.5 lakh crore) by 2020, a vibrant wireless telecom sector is critical for the growth of the e-commerce companies in the coming years.

Indian telecom dream

It wasn’t too long ago that hyper competition resulted in 13 telecom companies hitting rock-bottom tariffs.

When Reliance Industries Ltd chairman Mukesh Ambani launched Jio 4G services in September 2016, the existing telcos were rattled by the unprecedented free unlimited voice calling. In less than six months, Jio had managed to upset the applecart for everyone as it raced to 100 million subscribers.

Jio’s dream of becoming the biggest telecom service provider in India is expected to become a reality soon. After their recent increase in tariffs, Airtel and Vodafone Idea have reduced prices for new connections to lure new customers.

Meanwhile, government-owned BSNL and MTNL are seeing action too. More than half of their employees have opted for voluntary retirement. If that can help the two institutions survive the crisis, there might be that extra dash of competition.

Rising tariff may be bad news for consumers. But for India’s telecom companies, it is the surest indication that things are getting back to normal.

The author has been a business journalist, having tracked markets & economy across print & television media. Views are personal.