Telecom Companies Shutting Down in India

Now I will have to part with my Tata Photon Wifi dongle as Tata Indicom shuts shop in Delhi. For all of us born before 1990, we have seen exactly how India stepped into a modern, global economy with society witnessing widespread lifestyle and value system changes. Not all changes are for good, just like not all changes are for bad. Telecom sector has been a mirror of India's growth story. Black or Red Tata Photon dongles changed the way we accessed internet then. We did not need to go to 'Cyber Cafes' anymore. Not bound by a cable, we could make our laptops connect to the internet from anywhere. It was a revolution. When Wifi came, these dongles became WiFi devices too and continued to be in vogue.

If you look back at recent years, you would realize that Videocon Telecom had to shut down; Aircel became bankrupt; MTS had to shutdown; Vodafone and Idea had to merge; RCom became bankrupt; Tata Teleservices is near to close down; and even telecom tower companies are struggling. Airtel is somehow surviving, but had to sell off its Africa business as it struggles with finances. And Reliance Jio is the "only bright spot" in the sector; to borrow the popular phrase.

On the surface it would look like a technology change and normal market evolution which leads to "rule of 3". But look deeper and find that it is not as easy as that.

The whole mess started with last corrupt government's "2G Scam" and a 'super enthusiastic' Supreme Court cancelling 122 spectrum licences. With licenses gone, the business plans of all companies went into a toss. I am against court's blanket rule in most cases. (It is similar to what happened in Noida/NCR in the construction sector. When builders delayed completion of projects; the Court stopped builders from doing anything at all; hence most builders went bankrupt and can't complete projects. Did court intervention help? No. Only now, Yogi govt is managing it in a more balanced manner and we are seeing some progress).

Then recently there have been a series of policy changes by the telecom regulator TRAI. Most of policy changes have made older telecom players irrelevant and favored new entrant (read Jio). There are lot of people who believe that ever since Jio entered, each policy change has favored Jio in some way or the other and has harmed older players. Case in picture is reducing interconnect usage charge (IUC), roaming charges, etc. All changes were done in the name of reducing costs for common people; but have helped Jio and harmed older companies. It can be easily seen that due to these changes if older players go bankrupt and in the end, if there is a market monopoly by Reliance, will it not lead to increase in prices? We have seen competition causing maximum price reduction than any government regulations. (Same case in Airline sector; where govt has been trying to make travel cheaper; but the best way to make travel cheaper is not through the law but through market competition - if there are more players, it will cause prices to drop because of 'price-wars').

When these companies enter a market, they make business plans for next 5-10-20 years. In India, basic infrastructure is non-existent and hence companies have to invest heavily in capital expenditure. Technology changes can still be managed, since Indian mass customers are not very tech savvy. But policy changes by govt or regulators favoring one against others changes the game altogether. In the end, people will lose, as scores of employees lose jobs since these companies are shutting down; and with less competition prices will increase in the long run.

Bottom line: Just like RBI is to be blamed most for the banking sector mess; TRAI has to be blamed for the telecom sector mess. For businesses to prosper there should be less frequent policy changes and policy changes should not favor one player unreasonably.

- Rahul

Disclaimer: Views expressed are personal.