The Indian government may throw a lifeline to its mobile operators, which were hit by a recent court judgement that would require them to pay almost $14bn related to adjusted gross revenue (AGR). There are proposals to allow the MNOs to defer spectrum payments, and all three of the major operators – Vodafone Idea, Reliance Jio and Bharti Airtel – plan to raise prices from next month, to start to extricate themselves from a crippling price war that will make next year’s 5G auctions unaffordable.
The administration needs to act – there has been speculation that Vodafone might even pull out of India if the financial situation does not improve, which would be a hefty blow to India’s ambitions to become a leading mobile and digital economy (Vodafone denies any such plans).
Vodafone Idea and Airtel have already announced price rises, and were quickly followed by Jio and even state-owned BSNL.
“Like other operators, we will also work with the government and comply with the regulatory regime to strengthen the industry to benefit Indian consumers and take measures including appropriate increase in tariffs in next few weeks in a manner that does not adversely impact data consumption or growth in digital adoption and sustains investments,” said Jio in a statement.
Regulator TRAI is planning a new consultation about pricing in the mobile industry, and is likely to propose setting a minimum pricing rate, possibly to help keep the three majors viable and so reduce the risk of Vodafone pulling out, leading to an effective duopoly.
“The sector is highly capital intensive with fast-changing tech cycles that require continuing investments,” said Airtel in a statement to accompany its pricing announcements. “It is, therefore, extremely important that industry remains viable to support the vision of Digital India. Accordingly, the Company will hike prices from December.”
The government has also indicated it will defer payments for spectrum by up to two years and increase the number of instalments from 16 to 18.
Beyond this, the government is considering a broader bail-out package which could also involve a reduction in licence fees, from today’s rate of 8% of AGR; a waiver of penalties on the past owings; reduced interest rates; and a moratorium on dues.
The AGR dispute dates back 15 years. At issue is whether revenue from non-telecom activities should form part of AGR under telecom license conditions. Operators in the private sector have argued it should not, while the government has taken the opposite view. After a court ruling that took the government’s side, operators face crippling payments in penalties, licenses fees and interest.
But Jio argues that its rivals should not be offered relief packages. “Any reduction in the financial liability of the licensees arising from the judgment of the court would in effect be rewarding them for their conduct in initiating frivolous and vexatious proceedings to delay payment of their just dues… any proposal for waiver will be considered as a loss to the public exchequer and contrary to the Supreme Court judgment,” it said in a letter to the government earlier this month.