As Indian cellular industry awaits the government’s decision on financial relief, divisions in the industry is growing wider. It is evident from the Vodafone letter to Telecom Minister Manoj Sinha where it warns favouring Reliance Jio and cautions against taking any step that could further detabilise the sector…

NEW DELHI, AUGUST 27, 2018: At a time when the government is finalising its recommendations to give possible relief to financially-stressed telecom sector, British telecom major Vodafone has written to Telecom Minister Manoj Sinha seeking reduction in interest rate on deferred spectrum payment and warned against reduction in mobile termination charges (MTC) which, if implemented, could further destalbilise the sector.

“We hope the IMG (inter-ministerial group) will recommend a reduction in the interest rates for deferred spectrum payments to 6.25% in line with the improved macro-economic trends and an increase in the period of payment for spectrum…We are seriously alarmed to see reports that the regulator is considering a reduction in MTC at a time when the industry is facing such immense hardships,” Vodafone Group Chief Executive Officer Vittorio Colao said in a letter written to Mr. Sinha.

Vodafone Group Chief Executive Officer Vittorio Colao

IMG, which was formed by the government to looking into the woes of telecom sector, is likely to give it report by this month-end. Vodafone is the second biggest mobile operator in the country and is in the process of merging with third largest operator Idea Cellular. The entity will become India’s top operator by dethroning Bharti Airtel. The consolidation move is triggered by the entry of Mukesh Ambani-led Reliance Jio.

“There are only a few operators, like us, who have invested heavily in both rural and urban areas and are proud to have brought connectivity to every Indian’s hand. Today 97% of population is covered by telecom. Any move to further reduce MTC risks destroying the very companies that have invested to build this industry. The existing rate of 14 paisa is already below cost. This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas. Even at the present MTC rates, 15-20% of our sites run at a loss. Any reduction in MTC risks large scale site shut-down of already unprofitable sites in rural India and which would greatly diminish the population coverage of mobile telephony,” he said.

In his letter, Mr. Calao further stated that the success of reaching telecom to rural and poor citizens was the bold move to Calling Party Pays (CPP) in 2003. It is relevant to note that nowhere in the world do Bill and Keep (BAK) and CPP regime co-exist as is being proposed by new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers, he said.

“There is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage in the region of 70% compared to the established 2G/3G/4G operators. There is no evidence — either Indian or international — to support such a claim. If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case. It may be noted that the costs of the new entrant are higher than any other operator, whether in terms of employees (approximately double Vodafone India when including outsourced employees) or infrastructure (significant sole tenancy approach vs the tower sharing approach adopted by other operators),” he said.

Taking potshots at Reliance Jio, the Vodafone Group CEO said the new entrant has assumed continued growth of an implausible level of paid traffic on its network. However, the present traffic levels are a result of extreme promotional activity and generated by incurring huge losses. “RJio is also assuming that it can recover its costs many years into the future. However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher ARPUs in future, which is unfeasible/ unrealistic. It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance,” he said.

Urging the Telecom Minister to safeguard the future of the telecom sector, Mr. Calao said the need of the hour was to ensure that there should be no further reduction in MTC as it would destabilise the sector, defeat government rural coverage objectives and cause huge inconvenience to citizens, in particular, in rural India.

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