Years After Hitting Reset, Indian Telecom Companies Are Still Battling Survival Issues

And then, as happened to Icarus in Greek mythology, the telcos flew so high that the Sun melted their wings of wax and sent them plummeting to the ground. Of the 20-plus telecom companies that set up shop in India, only three survive now.

Today, in Reliance Jio and Airtel, the sector has emerged as an undeniable duopoly, especially as the last remaining private operator, Vodafone-Idea, finds itself perennially in survival mode.

In this listing, we have not counted state-owned telcos MTNL-BSNL because the duo continues to paddle dodgy waters strictly on the largesse provided by the Government through both funding and business-sustaining spectrum resources. Also, they have neither 5G nor wireless broadband services to speak of.

It is paradoxical, then, that the one common thread running across the few remaining private operators is an insatiable scramble for funding. That’s ironic too, considering that it is funding (‘debt’) of billions of dollars that nailed India’s now-extinct telecom operators to the wall.

Mountain Of Debt

Today’s three active operators account for over Rs 6 lakh crore (US$ 75 billion) in debt, with just financing costs steep enough to eat into a vast chunk of the profitability. That’s despite runaway wireless data usage in India, largely driven by dirt-cheap pricing, the lowest in the world.

The spread of red ink on balance sheets is eerily similar to that which brought down other telcos—the last two Big Daddy operators to shutter down, RCOM and Aircel, had a combined debt of over Rs 1 lakh crore (US $12.5 billion).

To battle the acute cash crunch, private telcos are making a focused play for the still-booming mobile advertising market, which a recent FICCI-EY Media & Entertainment report said: "Digital advertising grew 15 per cent to reach Rs 57,600 crore, or 51 per cent of total advertising revenues (in 2023)". These numbers are a tempting carrot where Vodafone-Idea’s recent and very successful Rs 18,000 crore Follow-on Public Offer (FPO) comes into play.

Mobile Ad Space Play

Vodafone-Idea’s Chief Marketing Officer Avneesh Khosla admitted that the mobile ad space is alluring, where the telco can create a strong niche in a big opportunity, especially given its own AI/ML-driven adtech platform. Telcos have the unique opportunity to provide specific inputs to marketers and effectively reach targeted audience groups, he said, adding that today’s market is all about getting two pillars right—authentic insights and enhanced reach.

Arch rivals Reliance Jio and Airtel launched their ad solutions bouquet in 2021 itself and, thus, it remains to be seen how Vodafone-Idea plays catch-up.

Talking of pillars that prop up and sustain, State Bank of India Chairman Dinesh Kumar Khara said last week that Vodafone-Idea’s FPO would put the telco in a new trajectory and make it a stronger “third pillar” in the telecom space, underlining the trust of the investor community in the company and in Aditya Birla Group chairman Kumar Mangalam Birla, one of its promoters.

However, assuming that a portion of the FPO proceeds will be used to service financing costs, much more propping up than Rs 18,000 crore may be required to meet the telco’s pecuniary needs.

What is clear is that India’s 5G and broadband data access wars will only heat up even more when Vodafone-Idea enters this technology space. “Whenever a tech change happens, a key factor is device penetration. As of now, 5G device penetration in India is in single digits. But as we go along, penetration will go up and data growth will also happen,” Sanjay Malik, head of Nokia India, said last year on the sidelines of the Mobile World Congress in Barcelona.

It has been reliably learned that after the Government’s equity conversion (the state now owns around 32 per cent in Vodafone-Idea), the telco is in advanced discussions with equipment and infrastructure providers, particularly Nokia India, for 5G equipment supplies.

When the operator moves ahead with its 5G plans, it will provide impetus to device sales too, sparking off a return to the days of handset services bundling, on a scale much grander than before. Do remember that Vodafone Group Plc is from Europe, the global hotspot for bundled device-services offers.

Even given this silver lining, the drawback for Reliance Jio and Airtel (as also Vodafone-Idea) is that India’s Average Revenue Per User (ARPU) remains low, despite every second person being glued to their mobile devices. For instance, Reliance Jio and Airtel enjoy ARPUs in the vicinity of Vodafone itself, at around Rs 200, plus or minus a few percentage points.

Thus, volumes still play God in India, with Reliance Jio and Airtel each showing monthly growth of around 5 million subscribers, taking their overall tally to around 450 million and 375 million, respectively, with Vodafone coming in third with around 220 million. Together, that’s over 1 billion users.

Volumes Key To The Game

Analysts like Goldman Sachs say the ARPU traipsing act is set to change and that data revenues will see a significant rise; enterprise and fiber-based data contributes to under 10 per cent of revenues today. In the case of Reliance Jio, which started its services with the “voice will forever be free in India” war, fibre-to-home and enterprise data contribute 7 per cent of revenues.

In contrast, wireless data revenues are higher on a percentile basis, rising 22 per cent to Rs 1.74 lakh crore in FY 2022-23, from Rs 1.43 lakh crore in FY 2021-22, as per the Telecom Regulatory Authority of India.

A reason for the darkness that India’s telcos find themselves in is past spectrum procurement costs, which started in earnest with the 3G airwave auctions in 2010. Today, there’s a saving grace, with the Government having brought in the Telecommunications Bill 2023, which paves the path for administrative allocation of spectrum free to telcos, bypassing auctions. The move, though, has already stirred up the proverbial hornet’s nest, with many legally challenging this latest ‘gifting of a precious national resource’.

The last time such a standoff happened, a government was voted out of power and a scam was born, one that also began the end of days for many a telco. One only hopes that this time around, the resolution is more fertile, providing succour not just for enterprises but also for the average Indian, who today uses the handheld as much for fun as for employment, education, healthcare, awareness, and empowerment. We just can’t afford any more exits from Indian telecoms.

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