The current state of the Indian telecommunication companies pose a poor state of affairs, primarily burdened under the government’s Adjusted Gross Revenue (AGR) dues, which has proven to be the biggest headache for the players in the industry. The 1.2 billion subscriber base Indian market is perhaps witnessing one of its toughest times, as the industry is looking at shutdown of the stores of one of the biggest incumbents and fears a duopoly setup.

The second-largest telecommunications market in the world is highly under-revenue and statistics say it all. Even after the latest November-December rate hike of about 40%, the Indian rates are still the cheapest. The incumbents, such as the likes of Vodafone Idea and Bharti Airtel, worst performed in the July-September’19 quarter, with a total loss of Rs. 73,966 crores.

India’s average 1GB price is far below than that of the global average
India’s average 1GB price is far below than that of the global average

The pain point:

The massive AGR dues in front of the telecoms, ace all tests to be a major business resistant for them. Let us first understand, as to what exactly is the AGR due?

The National Telecom Policy, 1994 that liberalized the telecommunications sector had laid down the requisition of sharing of AGR by these companies with the government under the disguise of licenses fee. The AGR due comprises two components- (a) Annual license fee (LF) set at 8% (b) Spectrum Usage Charges (SUC) set at 3-5%. The definition of AGR was contested against by the service providers, which was put out by the Department of Telecommunications (DoT) wherein they proposed that AGR should solely consist of revenue accrued from core services and no other financial component. The fortune did turn to their side, until the Supreme Court passed a verdict against it, in October 2019.

The AGR episode has turned out to be no less than a rugby match. From telecos pleading relief to the extent of Kumar Mangalam Birla connoting that no relief from the government would make it difficult for Vodafone Idea to keep its India operations afloat, perhaps delivers the importance of the pain point.

 AGR dues for the incumbents, with categorization
AGR dues for the incumbents, with categorization

The profitability parameter:

The Average Revenue Per User (ARPU), in recent times, has been under some limelight, which qualifies to be a key profitability matrix for the business houses in the concerned space. As the name suggests, ARPU refers to the average revenue that the company earns from a single user. On the back of a recent 40% hike, ARPU is expected to jump up by approximately 11-23% across the companies, the full number benefit not trickling down due to non-inclusion of postpaid users and high elasticity in voice and data.

Revised ARPU for Bharti: The bar graph successfully portrays the trickledown effect of rate hikes, in the ARPU, for Bharti Airtel.
The bar graph successfully portrays the trickledown effect of rate hikes, in the ARPU, for Bharti Airtel.  

The future:

The current scheme of things seems bizarre as the industry might settle into a duopoly setup. What does one have instore?

Either, the two players can employ heavy price and non-price competition to snatch market share from the other player. This, by and large, would benefit the users but the companies could see slim revenues on the back of aggressive discounting. On the flip side, there also exists a possibility wherein the two companies merge and operate as one. This could hurt the sentiment of the users, as a monopoly form would give absolute price making control to the service provider.

Also Read: Entry Of JioMart

Koala’s take:

One striking point that I would like to accentuate, is the role of the government in the concerned space. The present situation is critical and I feel that it is the due responsibility of the authority to step up and provide a helping hand to the companies. What one needs to realize is that how imperative the role of authorities turn out to be, in any crisis situation. There needs to be a clear dichotomy between the corporate side and the governance side of affairs because the approach surely demands a change as far as the two verticals are concerned. Thus, the excessive resting of power in the hands of the directorate comforts them with the luxury of either breaking or making a business house. POV: Shyam Agarwal

A bird’s eye view of the industry disruption, after the entry of Jio, as far as the prices are concerned.
A bird’s eye view of the industry disruption, after the entry of Jio, as far as the prices are concerned.  

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