What is happening with India's telcos?

Presently the telcos are neck deep in debt. The telecom industry’s debt to banks is estimated at  4 lakh crores. The telcos are demanding for a stimulus in this sector as in their view the present situation is a result of unfavorable government policies and due to a new entrant in this sector. The ministry of telecommunications has said that the solution for aiding this sector would have to be done at the policy level to keep sector alive.

Telcos argue that the sector is too critical to be allowed to fail. In 1998-99 the NDA government bailed out telecom operators. At that time the mad bidding for voice prices was the reason for the crisis in the sector. However, the bailout was followed by a boom. But the question arises what is government bailing out -  A wrong business decision or its wrong decision?

According to telcos the high astronomical prices during the rebidding of spectrum in 2014 was a result of faulty government policies. The revenue share model, present GST rates, and the high spectrum fees are some of the major problems cited by telcos.

However, it should also be noted that the telecom companies in India were not investing in the network. They were investing in infrastructure and thus increasing their capital expenditure leading to more debts. Globally the infrastructure expenditure is incurred by the real estate providers. As the companies were not investing in technology it got a big jolt when the new entrant came with unmatched data services.

The telcos are now considering mergers as a solution to alleviate their present woes. In India, there are many telecom operators. There is no country around the world having so many operators, so possibly the merger can be a good step. But it should also be noted that two bad telecom operator can’t give a good telecom operator. The merger between Reliance and Aircel didn’t work because banks did not agree to the merger. This is because the merged entity would result in a larger write-off which will wipe out Rs. 25000 crore from the banks’ balance sheet.

The solution lies in both government and telcos agreeing to take steps to sustain this sector. The telcos need to divest from the business which ain’t considered productive. The government can act as a facilitator by easing the procedures for mergers. Also, the telcos should start investing in new technologies and upgrading networks constantly.