Indian telcos are ‘cap in hand’ in front of Government

The digital economy in India is accelerating at an almost unprecedented speed, but this is a market which is far from being in a healthy position.

To state the telcos are in a precarious position would be considered one of the biggest under-statements of this or any other decade. In an attempt to reverse their fate, the telcos have reportedly approached the Indian Government to plead for some sort of assistance.

According to local press, the telcos have requested the creation of new funding mechanisms with lower interest rates, a refund of accumulated input tax credit, as well as the removal of goods and sales taxes on licence fees, licence fee, spectrum usage charges and the payment of spectrum charges. The telcos are also requesting cell towers be reclassified as plant and machinery for input tax credits.

In short, the telcos need a lot of help as well as regulatory reform if the market is to become sustainable for the long-term. The Department for Telecoms has said it will listen to the ideas of industry until Tuesday (January 7), before making a decision.

The Indian telecommunications industry is perhaps one of the most interesting around the world, but this is as much because of the precarious path being trodden as it is for the potential cash bonanza.

India has the second-largest population in the world, a rapidly growing middle-class of digitally enthusiastic millennials and an economy where GDP is growing more than 6% annually, compared to a global average of 3.01%. India is a flourishing market, though this success is clearly coming at a cost for the telcos.

One of the reasons the digital economy is aggressively expanding in the country is the cost of connectivity. When Reliance Jio entered the market in 2016, it democratised access to the World Wide Web for Indians. The aggressive pricing strategy forced competitors to lower data tariffs, making the digital economy accessible to all. More than three years later, the average cost of a GB is still unsustainably low at $0.26.

Thanks to the socio-economics of India, data tariffs will never reach (or shouldn’t reach) the levels of Western Europe or the US, though prices do need to be at a level which offers the industry the ability to generate ROI. $0.26 per GB does not, and this is one of the reasons the telcos are facing the financial strangleholds of today.

This is a problem which the industry created for itself, and also one which the regulator simply watched develop. However, it should also be noted annual payments for spectrum are crippling the telcos. The telcos insist the Government is charging too much, though a court ruling is forcing the telcos to pay up, playing them under financial duress.

Whether the Government listens to the pleas of the telcos remains to be seen, though it should be noted action needs to be taken. The majority of competition in the country has already been eradicated thanks to the pricing war, and with two of its three major telcos facing financial calamity, the future of the hangs in the balance.

Unless some serious bureaucratic and regulatory changes are made in India, perhaps the most likely outcome is a monopolised market. This is not a situation anyone involved would like to see emerge.