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Jio criticises COAI for favoring competitors; DoT’s committee to examine financial stress in telecom

A telecom tower

Jio has criticised telecom industry body⁠—Cellular Operators Association of India (COAI)⁠—for writing a letter to the government highlighting financial stress in the telecom sector without waiting to incorporate Jio’s comments. Jio also criticised COAI for acting in the sole interests of two competing players Bharti Airtel and Vodafone Idea.

What was COAI seeking from the government? The COAI was seeking the Telecom Ministry’s intervention in the recent Supreme Court’s decision that has directed the Telecom Service Providers (TSP) to pay their dues, penalty, and interest worth Rs 92,640 crores within three months. The COAI argued that such payments will lead to a crisis at the companies and would cause distress to the sector as a whole. Bharti Airtel and Vodafone Idea backed COAI’s views in the letter but Jio criticised it and said the letter does not represent industry views.

In its letter to COAI yesterday, Jio accused the industry body of “serious breach of trust” and stated, “It seems that there was extraneous consideration to send this letter, only on the behest of other two members [Airtel and Vodafone Idea]. By such unwarranted behaviour COAI has proved that they are not an industry organisation but just a mouthpiece of two service providers.

What was the Supreme Court’s judgement on TSPs? Last week, the SC had ordered that telecom companies have to include non-core income for calculation of Adjusted Gross Revenue (AGR), and asked them to pay Rs 92,640 crores to the Centre, which includes disputed demand, interest, and penalty. It’s worth noting that out of the 15 old operators impacted by the order, only two private sector operators, Airtel and Vodafone Idea, remain in service today. The rest have either folded up or merged. Jio, on the other hand, began operations in late 2016 and is least affected by the SC ruling because it has only $2 million [Rs 14.5 crores] in charges to clear, per a Reuters report.

In its letter to COAI, Jio said, “We suggest that COAI should stop blaming Hon Supreme Court for their orders but ask members to respect the judgment and stop forum shopping for relief.”

What did Jio say about incumbents?

  • Failure of other two operators cannot be blamed on the government: Jio said the financial difficulties of the said operators [Airtel and Vodafone Idea] are their own doing and the effect of their own commercial decisions. It further noted that the “government should not be obliged to bail them out” of their own commercial and financial mismanagement.
  • Incumbents were not investing sufficiently: Jio noted that the other operators were not investing sufficiently in the telecom sector and have been “shedding crocodile tears” by claiming financial stress over a long time now. It added that other operators have not shown any inclination to modernise networks and Reliance Jio has made an equity investment of Rs 1.75 Lakh crore.

Government forms a committee to provide relief to telecom sector

On Monday, the government formed a Committee of Secretaries (CoS) headed by the Cabinet Secretary Rajiv Gauba, to examine challenges faced by the telecom sector and suggest measures to mitigate the financial stress in the sector, the Department of Telecommunication (DoT) said (see below). In parallel, the Telecom Regulatory Authority of India (TRAI) is also expected to examine the possibility of laying down a minimum charge for voice and data services, DoT confirmed.

The official note stated, “The government intends to take a holistic view of the entire situation. The CoS is expected to meet shortly and submit their recommendations in a time-bound manner.”

COAI has urged the panel to prescribe immediate relief measures to address the stress situation in the telecom industry, especially after the SC’s order on AGR, reported The Economic Times on Tuesday.

Which issues will the CoS look into?

According to the DoT’s notification, the CoS will look into the following issues:

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  • Demands of the 3 incumbent companies: CoS will look into the demand for deferment of spectrum auction payments due for 2020-2021 and 2021-22, which will ease the cash-flow situation of the sector. The telecom sector has also requested reduction of Spectrum-Usage-Charges, the DoT’s notification said.
  • Review of USOF charges: The committee will review the Universal Service Obligation Fund (USOF) charges. The USOF charges are currently at 5% and TRAI has recommended reducing it to 3% so that an effective license fee is reduced to 6% (compared to 8%). USO funds are disbursed by the government to expand internet and mobile connectivity in rural areas.
  • Review of the Spectrum-Usage-Charges: The Telecom Service Providers (TSP) have requested for reduction of Spectrum-Sage-Charges (SUC). In 2017, TRAI had given recommendations on reducing the SUC charges and later the DoT suggested it to review them as this was causing a burden on the telecom sector’s financial health. SUC is levied on mobile services companies as a percentage of their adjusted gross revenue (AGR) and is payable as per the spectrum slabs by the government from time to time.

The TSPs claim that a large amount of input tax credit is available to their credit in the government account which they have requested to be adjusted against future government levies.

Poor health of the telecom sector: The DoT made note of the following points regarding the financial performance of TSPs:

  • The aggregate gross revenue of the industry for the period between 2017-2018 and 2018-2019 has decreased.
  • The price of data for the customer at an average of Rs 8 per GB is the lowest in the world.
  • The average revenue per user (ARPU) per month has declined from Rs 174 in 2014-2015 to Rs 113 in 2018-2019. It also estimated that a subscriber on an average uses 10 GB of data and 700 minutes of mobile talk time per month.

[embeddoc url=”https://www.medianama.com/wp-content/uploads/Reliance-Jio-Letter-to-COAI-dated-30th-October-2019.pdf” download=”all”]

[embeddoc url=”https://www.medianama.com/wp-content/uploads/Telecommunications.pdf” download=”all”]

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