India’s telecom industry is the second largest in the world by the number of telephone users (both fixed and mobile phone) with 1.183 billion subscribers as on 31 May 2019. It has one of the lowest call-tariffs in the world enabled by mega telecom operators and hyper-competition among them. As of 31 July 2018, India has the World’s second-largest Internet user-base with 460.24 million broadband internet subscribers in the country. As of 31 December 2018, India had a population of 130 crore people (1.3 billion), 123 crore (1.23 billion) Aadhar digital biometric identity cards, 121 crore (1.21 billion) mobile phones, 44.6 crore (446 million) Smartphone, 56 crore (560 million or 43% of total population) internet users up from 481 million people (35% of the country's total population) in December 2017, and 51 percent growth in e-commerce. But in recent years the Indian telecom industry has become a battlefield of not just rival firms, but of larger competing truths. These conflicts pose policy questions that are symptomatic of the underlying tensions between regulatory restraints and industrial growth. These truths also conceal within them a glimpse into the changing order of innovation and business models. The telecom crisis, therefore, in many ways, has the potential to guide us in revising some of our standard narratives on competition policy. In this essay, I dwell on these very foundational truths in the cacophony of voices on the telecom sector crisis. In particular, I advance two points. First, the nature of judicial decision-making now has huge policy stakes embedded within, and therefore, a larger philosophical discourse on the Court’s role in examining the point of law vis-à-vis the point of the policy is needed, particularly when points of law are increasingly folded into complex and technical questions that are evolving at hand. Second, the regulatory attitude in the sector needs significant revision because the nature of competition, markets and innovation dynamics in this sector are changing rapidly. Today whatever is happening in the telecom sector is nothing less than a national emergency. The sector had been gradually sinking and is finally on the verge of crashing. Aviation had already been decimated by the state action; it looks like the telecom sector is next in the list. The telecom industry of India is in an execrable position. Jio has made the marketing practices unhealthy and de-motivated most of the service providers to sweep them out of the market. The various schemes Jio provided were against the authoritative bodies of the telecom industry but no strict step had been taken against them. The telecom industry has reached the dead-end from where it has no option but to become a monopoly. If the telecom sector becomes a monopoly market it is disadvantageous for both consumers and telecom companies. If Vodafone-Idea shuts down, it will lead to the unemployment of many and will have a huge impact on the economy. Today we are so addicted to the schemes provided by Jio that we would not be able to turn our backs but pay high charges that it would set. From being the world’s cheapest and faster-growing market, India’s telecom sector is sputtering as it faces a life-threatening liability running into billions of dollars, a crisis that may alter the characters of an industry that has already witnessed a painful price war, destroying profits and pushing other operators out of the market. The SC has now ordered the companies to pay the government not just the dues but a hefty penalty as well interest on both. On October 24th, 2019 Supreme Court on a petition moved by the government, ordered the payment of past dues according to its new definition of AGR, the country’s 2nd largest service provider Vodafone-Idea ltd warned of shutting down if no relief is given to them. The SC orders for including non-core revenue in the telecom group’s gross adjusted revenue, the figure on which levies are charged revived the rivalry between old operators and Jio. The total dues for the telecom industry ran into whopping Rs.1.47 lakh crores from 7-8 operators. The companies are supposed to pay up in three months. The judiciary in India has been a powerful catalyst for many policy reforms in the telecom sector itself (Thiruvengadam and Joshi 2012). Over the last decade, it has been a very important element in the policy space in general as well. But, as the sole final arbiter of commercial matters where stakes are so high, particularly in complex matters of evolving markets, and as the lines between policy and law blur routinely, one wonders the extent to which the judiciary engages in their judgments on points of economics as much as with points of law. The legal reasoning in the judgment cannot be disregarded. The Court essentially suggested that the understanding of gross revenue must come from the contract between the DoT and the telecom firms rather than from any accounting standard, as was claimed by the firms. The license agreement between the government and the telcos (drafts of which were circulated as early as 2001) stipulated the gross revenue heads which were under dispute. And therefore, clauses in that draft must be followed, as was decided. Further, the Court referred to its 2011 judgment of the Union of India v Association of Unified Telecom Service Providers of India, where it had ruled that the definition of AGR can only come from a contract, and not from even Telecom Disputes Settlement and Appellate Tribunal’s (TDSAT). The real context here is not the telecom firms’ health, but the changing nature of the telecom sector. Twenty years ago, securing a wired telephone connection in India was a matter of a family history event. Today, almost 119 crore people have access to telecom markets and 98% of them are on the wireless network (TRAI 2018). More than 45 crore Indians can now be identified as active internet users, half of which reside in rural parts of the country, and 99% of them use their phones to access internet (IAMAI 2019). India has the second highest number of mobile phones in the world. Five years ago, India had only two mobile phone manufacturing units, with half the phones being imported. In 2019, there are over 127 mobile manufacturing plants (Gupta and Auerswald 2019). These rapid changes necessitate a more policy-oriented view of the points of law. In this dynamic space, the consideration that the license agreements themselves were outdated carries some merit. Back in last 1990s, the government had fixed a 15% of AGR as license fee. Later it was reduced to 13% and in 2013, to 8%. These changes indicate the changing nature of the industry, competitive impacts, and resultant revenue figures. Increasingly, Indian courts are going to be finding themselves in intersections of competing policy and legal questions. And a more grounded philosophical inquiry will be valuable to ascertain the “role” of courts in an interdisciplinary, multidimensional and rapidly changing industrial world. The view that policy adjustments can be done by the government—rather than the courts—cannot be overlooked either. The problems of the telecom industry located in two different regions. First, if Vodafone-Idea quit the market, the industry will effectively be reduced to a duopoly. And that is a dangerous alarm bell for competition. The conflict between regulation and competition law in the telecom sector has been the bone of contention for several years (Kathuria 2018). And a competitive playing field is often what is credited to have secured a consumer-centric environment. But, that may be short-lived. At this stage, after a lot of closures, bankruptcies, and mergers, four players remain in the telecom sector: Vodafone-Idea, Reliance Jio, Bharti Airtel and BSNL with market shares of 31.7%, 30.3%, 27.7%, and 10.3% respectively. This puts the Herfindahl-Hirsch man Index (HHI) to 2,800 (HHI estimates market concentration, the lower the better for competition). If Vodafone-Idea packs up, then the HHI could increase by 47%– 68%. This is highlighted in Figure 1. This figure also shows the HHI in the telecom sector in a number of countries (data was secured through subscription values in Wikipedia). Vodafone-Idea’s exit may make the telecom market in India one of the most concentrated globally. The second location of concern is the changing market dynamics which bring back the importance of structure. Telecom businesses have begun exhibiting high levels of network externality that go beyond the traditional business model dependent on voice calls alone. The entire ecosystem of information and communication is the new playground of the telecom sector. This includes data, e-commerce, cloud, entertainment and sharing economies. In many ways, carriers are no longer carrying voice calls. They do (or potentially can) provide platforms on which transactions and not just conversations run. Economists call them two-sided markets and press the need to revise our existing regulatory and competition models to capture the new emerging models. In these markets, structure and not just prices matter, and given the network externality and multi-product pricing models, the Coase theorem fails, because the end-user is unable to internalize the welfare effect of their use of the platform on other end users (Rochet and Tirole 2006). This centralizes the role of expertise in regulatory governance even more. India seems determined to push telecom business into crushing debt & possible bankruptcy, instead of ensuring the sector remains healthy and competitive. The sector has witnessed many ups and downs but the current condition is harmful for the economy as it is channelizing a sector towards a monopoly market. This will abstain the foreign investors from investing in the Indian telecom market which will also lead to the slowdown of the development of the market.
- Rahul Sinha and Monishankar dutta for Ecobuzz
