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After eating 900 mice, cat goes on Haj! PDF Print E-mail
Tuesday, 10 March 2020 00:00
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Since both Trai & govt celebrated RJio’s pricing, it will be interesting to see their reaction to RJio’s U-turn on this

 

It is clear the country’s investment climate will be badly hit if, after all telcos have invested around Rs 11-12 lakh crore, a Vodafone Idea shuts down like so many others have over the last few years. It is equally clear that one of the biggest losers will be the government, given how much the telco owes it (Rs 215,000 crore) and the banks (Rs 49,000 crore). While it is still not clear if the government will take the right decision now—completely scrapping licence/spectrum fees, and charging only the principal of the AGR dues—it would do well to read RJio’s latest submission to Trai in response to the consultation paper the telecom regulator floated last December on whether there should be a floor price mandated for voice and data services.

Trai’s role in creating the crisis is well known—not only did it not think RJio’s pricing was predatory despite all evidence to the contrary, but it also went out of its way to hit the other telcos. This included levying an unfair penalty on them for call drops. Trai later came up with a technical paper explaining why the call drops weren’t the telcos’ fault, but still didn’t drop the penalty recommendation! Trai even came up with a recommendation that predatory pricing couldn’t be investigated till a telco had at least a 30% market share; that this helped RJio wasn’t lost on anyone. The fact that both the Tdsat, and the Supreme Court have come down hard on Trai (bit.ly/39EymS1) didn’t seem to even embarrass it.

But, Trai wasn’t alone in cheering while RJio’s pricing destroyed the industry. When RJio’s actions were bringing down industry tariffs—from Rs 163 per GB in December 2016 to Rs 20 in March 2017, and around Rs 7 now—the government was ecstatic; top government functionaries have repeatedly bragged about how, thanks to low-costs, India was now the world’s largest user of data on a per capita basis. Indeed, while regulators are generally not re-hired by government—this is seen as a potential way to influence them—Trai chief RS Sharma was given an extension after his term was over.

After having decimated the competition—Vodafone Idea alone lost Rs 98,005 crore from FY17 to the first three quarters of FY20—RJio has written to Trai saying, “as per analysis … across 230 countries, data tariffs in India are around 50 times lower than the tariffs of major developing/developed economies”. The data that RJio uses is the same that Airtel and the Cellular Operators Association of India (COAI) used in their submissions to Trai, making it clear that yesterday’s rivals have finally decided to bury the hatchet since there is no other option.

That Airtel and Vodafone Idea should make common cause with RJio to find ways to ensure tariffs rise is understandable as their very future depends on it. It its submission, RJio then goes on to say, “We submit that data floor price fixation exercise should not be shackled by varied costs of data services basis the technology deployed”. In the past, it used to be argued that RJio’s tariffs were not predatory because the technology it deployed was so top-class, this resulted in the cost of offering data being a small fraction of what it was under the older technology used by telcos like Bharti Airtel and Vodafone Idea. If only, the argument went, these telcos used the newer 4G technology, they too would be able to offer subscribers data and voice services at the rates RJio did. The argument was always a fallacious one since what matters for tariff-fixing is the total investment made, and RJio’s tariffs were not guided by this principle. But, just to ensure that Trai doesn’t use the cost-of-providing-services as a basis for setting the floor price, RJio has said Trai should not consider technology costs!

RJio goes on to add that “the floor price fixation exercise should be benchmarked to the industry revenue and further investment targets”. This is correct, and hopefully Trai will keep this in mind, but the government must ask itself why its ministers and bureaucrats—and the Trai chief it readily gave an extension to—didn’t think this mattered in the past.

RJio wants the tariffs to be raised “at least to Rs 20 per GB”. But, why should it be Rs 20 even though that will, undoubtedly, be a big help to the industry which is on the verge of shutting down? Even Airtel suffered losses of Rs 6,651 crore in the last seven quarters. Airtel’s submission says the regulator should consider the actual costs of operators, and fix the base-tariff in such a way as to guarantee them a 15% return on capital employed (RoCE). Airtel’s estimates of costs result in this data tariff being Rs 30 per GB whereas Vodafone Idea had earlier asked for the floor tariff to be Rs 35 per GB. While Airtel wants a minimum subscriber charge of Rs 80 a month, Vodafone wants a fixed connectivity charge of Rs 50 per month. RJio has no voice-only customers—the ones using 2G—and so feels “voice tariff should continue to be under forbearance as before”.

It is not clear if Trai will finally come up with a floor tariff, but what’s important is that, now that there are just 2-3 players (assuming Vodafone Idea survives) left, each time there is a tariff hike, it will appear there has been collusion—and, since the last time tariffs were hiked, the government was a party to the hike, this may not be too far off the mark either. Indeed, once Trai, or the government works out how much investment is needed in the future, this will be used to justify another round of tariff hikes. Airtel estimates the industry requires over Rs 1 lakh crore of investment over the next 18-24 months just to expand existing networks, even without taking into account what is required for 5G networks.

In the past, when there were many players, industry invested much more—Rs 4-5 lakh crore over just the last few years—without even the slightest whiff of collusion in tariff setting since there was enough evidence of robust competition in the marketplace. Ironically, even if Trai sets a higher floor price, or telcos act in concert—as they did in December—to raise tariffs, the amount of fresh investment will be limited. Bharti Airtel has told Trai that “Airtel will need an additional ARPU of Rs 80 to return a 15% RoCE”. In other words, there will have to be a considerable hike in tariff levels—industry ARPUs fell from Rs 141 in FY10 to Rs 73 in FY19—before investments start returning to earlier levels. If the Vajpayee government is remembered for ensuring telecom took off, the Modi one will be remembered for killing the sector.

 
 

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