Facing Uncertainty, Indian Telcos Are Raising Funds To Stay Afloat, Safeguard Future

Hot on Vodafone-Idea’s heels is Bharti Airtel, which conferred with top global bankers in end-2023 to explore fund-raising options for US$1 billion to pay off spectrum instalments and finance future expansion. Not to be left behind, Jio Infocomm raised US$2 billion in October 2023 to fund expansion of its already ahead-of-the-others 5G telecom network.

Just what is it that stokes and facilitates this insatiable appetite for investments in a high-stakes, high-risk sector like Indian telecoms? The question becomes compelling and all-pervasive if we delve into recent history and dig out the Big Daddies that have fallen by the telecom wayside—RCOM, Tatas, Aircel, Sistema-Shyam, Uninor and Virgin Mobile, etc.

When India embraced economic liberalisation in the 1990s, the telecom sector was in the forefront of that change. The opening up of the telecom sector to private competition alongside fast-unfolding changes in the mobile telephony space resulted in a radical transformation in the business communication. Foreign and private investors rushed to provide mobile phone services, with billions of dollars in greenfield investment.

By 200, the country had eight companies offering mobile phone services, including state-owned MTNL and BSNL that had enjoyed decades of monopoly in providing telecom services. Some of these companies fell by wayside, owing to poor finances and less-than-expected success in consumer acquisition. They either shut shop or merged with other entities. But there were that joined the race, hoping to reap a rich harvest in the world's fastest growing mobile phone market. By 2010, the number had reached record 12 (see chart).

The decade that followed, however, saw a dramatic and unexpected reversal of the trend. By 2020, most companies had either shut shop or merged with bigger rivals, leaving only four service providers in the field. Technically, there are four, but the market today is effectively a duopoly of Airtel and Reliance Industries-owned Jio.

The issue turns palpable when we look at the ‘investments to returns’ or ‘losses against due payments’ equations. Herein lies a horror story, one that has eaten up lakhs of crores of rupees in investments and coughed up little in the name of profits, and inexorably metamorphosed Indian telecoms in status from ‘sunrise’ to ‘sunset’ faster than any other industry sector, ever.

The predominant reason for the never-ending financing head-rush is that telcos, over the years, have bid excessively for spectrum whenever the Government has dangled the airwaves carrot. Today, those payments are due in instalments (overtly so in cases as precarious as Vodafone-Idea).

Tangential catalysts for fund-raising include the compulsion to service previous rounds of financing and pay other outstandings such as license fees, Annual Gross Revenue (AGR), etc. to the licensor (read the DoT). Then comes the telecom-kicker—to stay relevant and competitive, network upgrades and expansion are a must, and that needs large tracts of money. Put together, the above heads are all money-guzzlers, but an irrefutable prerequisite for basic survival.

This never-ending, fund-raising frenzy leads to an interesting question — what is the collateral and business selling point telcos have to offer financiers? Well, it is data services for sure, which all operators continue to bet heavily on.

Even Jio Infocomm and Airtel, despite carving out the lion’s share of this market, continue to plough in monies to expand their footprint and upgrade networks, that being the bulwark on their business. Indigenisation of equipment has also been increased to around 60 per cent, spurred by a government that is now also looking at other emerging sectors to diversify manufacturing operations in the country.

In the inscrutable and industry-pressured coercion to stay on top of the technology curve, telcos have created acronyms that are known to every Indian -- 2G, 3G and 5G are now dinner table conversations for all of us, rich or poor; urban or rural; and haves or have-nots. What is not being discussed at dinner tables (or in more relevant venues and places) is the toll this expansion and fund-raising has taken on telcos and the price it continues to extort.

An Expensive Business

Back to Vodafone-Idea. India’s two-horse telecom race has seen to it that the company, already reeling under a monumental debt burden, gets no immediate relief. It may be recalled that both partners had thrown in the towel a few years back when they decided to merge operations and bring in synergies for better cost management and lower infrastructural spends.

Vodafone Plc chief Vittorio Colao had ruled out investments by the parent company, saying it was “tough to conduct business” in India, while Aditya Birla Group chief Kumar Mangalam Birla offered his stake in Idea Cellular to any public sector or financial entity that could manage operations.

Against this grim backdrop come in subscriber numbers, which again point at a fast-cementing duopoly in Indian telecoms. As they battle it out to cover the entire country with their 5G data networks, Jio Infocomm and Airtel have been adding broadband customers and their wireless subscriber numbers increased by around 4 million and 2 million, respectively, in December 2023.

In contrast, Vodafone-Idea continued to lose subscriber headcount, reporting losses of over 1.3 million wireless users in December. This is not just cause for worry for Vodafone-Idea, but also for prospective lenders.

India’s Internet user base has also continued its rapid expansion as per the Telecom Regulatory Authority of India’s Annual Report for 2023. Overall numbers have reached 881.25 million as on March 31, 2023, an addition of 56.37 million users since numbers were last released on March 31, 2022.

Driving this growth is a surge in broadband subscriptions, which jumped to 846.57 million in March 2023, compared to 788.29 million a year ago, representing a 7.4-per cent increase and highlighting the rising preference for high-speed Internet access.

These numbers should be heartening, especially as they come after years of sledgehammer blows on Indian telecoms. The only notable relief came when the so-called ‘2G scam’ involving a notional loss of Rs 176,000 crore to the exchequer turned out not to be a scam at all. Even that was superseded by increased dues on account of license fees, interconnect and termination charges, spectrum usage charges, AGR, annual spectrum auctions and due payments, finance charges and network expansion fees. Two decades of intense competitions and payouts have already broken much of the camel’s back.

Citing this growth imbroglio and to scotch concerns about the future, the Government last year came up with Telecommunications Bill 2023, which seeks to create the ground for administrative allocation of telecom spectrum, bypassing auctions. Reminiscent of National Telecom Policy 2001, this move dredged up a storm for a while, with the authorities insisting that the primary objective was to foster national security and bolster sectoral growth.

The Government has also been attempting to lure in deep-tech sectors to manufacture in India, especially as R&D spends overseas are 2 per cent of revenues, compared to just 0.7 per cent at Indian companies.

The impact of these moves remains to be seen, especially since two of Indian industry’s biggest concerns remain cost recovery and job creation. If telcos can lead from the front and succeed on these two counts, they would again move very swiftly—this once from ‘sunset’ to ‘sunrise’.

(The author is a New-Delhi based journalist and policy analyst. Views expressed are personal)