Opinion | DoT-TRAI floor price move pulls the rug under Vodafone Idea

Manoj Kumar

On Wednesday, 28 October 2019, a Press Trust of India report put an end to the speculation that the department of telecom (DoT) or even the Telecom Regulatory Authority of India (TRAI) will fix a floor price on what telcos can charge us.

Not just DoT or TRAI, even the committee of secretaries (CoS) created (and now disbanded) chose not to tinker with price floors although it could have, given the terms of reference.

For context, the demand for prescribed floor rates had been driven by Bharti Airtel and Vodafone Idea on the back on the two-pony Cellular Operators Association of India (COAI). Nothing better than the licensor or even the regulator to ensure that customers pay more!

A maximalist position by COAI, ignoring serious letters of dissent by Jio, its own member, was a ploy to take advantage amidst the brouhaha of telecom sector stress purportedly caused by the Supreme Court order on adjusted gross revenues (AGR). The howling dimmed the talk of violation in accounting norms on provisioning and contingent liabilities over many years. Even hard-nosed accountants fell for the wolf’s bleating even though the Supreme Court had punctured the sheep skin.

This maximalist position included a waiver and/or deferment of recovery by 10 or more years of outstanding licence fees (LF) and spectrum usage charges (SUC).

Much water has gushed past in just a month since the SC judgment. This includes the formation of the committee of secretaries (CoS) on demands of the telcos, and the government’s assurance to Parliament that it won’t be caught distributing goodies before the SC’s 90-day period of compliance kicks in on January 25, 2020.

As if in step, Bharti Airtel has told shareholders that it will create provisions of about Rs 29,000 crore towards the shortfall in LF and SUC. This does not mention its short shrift of the Companies Act, 2013 read with the Accounting standards 37. Vodafone Idea has used a similar script.

The similarity ends here.

My drilldown of 10 years of data shows that Bharti Airtel is far ahead in the game. Fear of a Vodafone Idea exit, the latter’s petulance and its belated compliances of law by provisioning against LF and SUC have helped Bharti piggy back on concessions like the two-year moratorium on payment of spectrum-related dues.

I have analysed and discussed the balance sheets of the two incumbents in my earlier columns (read here, here and here). Vodafone Idea is uniquely vulnerable with legacy shortcomings in LF and SUC dues flowing from its foreign joint venture partner Vodafone. Between the two, Vodafone is more vulnerable and a price floor would have helped staunch the bleeding.

As for the government, a move such as fixing a floor would have clearly required some explaining on its part on the balance between healthy competition and an anti-consumer anti-competitive pricing model. Therefore, both the DoT/CoS have remained distant from such a request. Likewise, TRAI.

But why is COAI, a long-standing ally of Bharti Airtel above all other members, in concurrence?  Shareholders of Vodafone Idea may want to ask what has changed in the brief of COAI that it has agreed to welcome the CoS’s concession on spectrum-related dues but not push for the floor price in tariffs?

The minimum floor price for telecom tariffs was demanded in the first place as a measure supposedly to enable sustainability and survival of incumbent telecom service providers. This now turns out to be possibly true for only one of the said telcos.

That’s because there’s the possibility of a windfall for Bharti Airtel from the potential fall of Vodafone Idea in the 2G/3G services space minus a floor price. Airtel’s strategy seems to have been revised. In other words, in telecom rates are not hiked, Vodafone Idea could well be on its way to the National Company Law Tribunal (under bankruptcy law) and a stronger Bharti will stand to gain from a migration of the former’s 2G/3G subscribers.

Why then would Airtel be interested in Telecom Tariff Order (read floor rates) if a chunk of Voda’s 2G customers do not migrate to 4G and continue giving their hard earned money into (Airtel) 2G?

Manoj Kumar is the founder & Managing Partner of Hammurabi & Solomon Partners. Views are personal.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.​