Looking Back at 2019 in India: 5G Miss, AGR, Price Hikes & More

India's telecom sector has witnessed a year of major developments in 5G, pricing, competition and M&A activity. The year 2019 was a particularly tumultuous one for the Indian telecom industry. Several issues, including ever-increasing debt, low margins and the weak performance of government-owned service providers, all came to a head. India misses the 5G bus The Indian administration had promised to hold a 5G auction in 2019 but was unable to do so. Authorities had hoped to launch 5G services at the same time as more developed nations, but this now seems unlikely. That's because service providers lobbied aggressively to postpone the spectrum auction, and eventually had their way. Their resistance is explained by the industry's huge debts. Service providers have also been demanding a reduction in the spectrum base prices, but the government has yet to decide on this. It remains unclear when the 5G spectrum auction will be held. In all likelihood, the auction delay means India will launch 5G services much later than other countries. Recently, the Cellular Operators Association of India (COAI) said that Indian service providers are likely to push back 5G network deployments by at least five years because of high base prices and insufficient spectrum. Telecom vendor Ericsson has also revised its estimate for when India will start to roll out 5G services from 2020 to 2022. The government was also supposed to carry out 5G trials and had invited vendors, including Nokia, Ericsson, Samsung, NEC, Qualcomm and Cisco, to participate in these. Huawei and ZTE, two Chinese vendors, were left off the list amid security concerns. Huawei, which countries including Australia and the US have banned, has been trying to get an invitation from the government for the 5G trials. Authorities have yet to make their position clear, generating further uncertainty for Indian operators. The AGR imbroglio Indian service providers have been complaining about the never-ending list of penalties, dues and charges they must pay authorities. The latest issue to hit them was a 15-year dispute about so-called Adjusted Gross Revenue (AGR). The Supreme Court this year ordered service providers to pay 920 billion Indian rupees ($13.9 billion) in license fees, penalties and interest payments under this AGR ruling. The crux of the issue was whether revenues from non-telecom related activities should be included in the definition of AGR under telecom license conditions. Yes, said the government, while telcos unsurprisingly took the opposite view. India's legal authorities took the government's side. (See Indian Telecom Industry Still in a Tough Spot.) As a result of this judgment, Bharti Airtel needs to pay $3 billion, while Vodafone Idea will need to pay $4 billion, which wipes out its entire cash balance of $2.9 billion. The bill for Reliance Jio, which started operations as recently as 2016, is about $1.8 billion. India's telecom sector was already heavily indebted, and the AGR decision has added to the financial pressure. While the court order stipulated that telcos need to pay up within three months, authorities have subsequently offered some relief by deferring payments for spectrum dues by up to two years. They have also increased the number of payment instalments from 16 to 18. For a while, there was speculation that Vodafone would be forced to exit the country, with the company denying the rumors. However, Kumar Mangalam Birla, the chairman of shareholder Aditya Birla Group, recently said that Vodafone Idea would be forced to shut shop unless the government provides some relief. There is little doubt that the company's finances will be stretched because of the AGR ruling, and it will take a long time to recover. Although authorities have not provided confirmation, they seem likely to offer some form of relief, and not just a payment deferment. It would reflect extremely poorly on the Indian administration if a prominent company like Vodafone were forced to exit the Indian market. Price hike One of the biggest stories of the year was the price hike announced by all the telcos, including RJio, after the recent AGR decision. (See RJio Will Gain Most From India's Tariff Hike.) For the time being, the telcos have increased prices only for prepaid subscribers, but they are likely to raise postpaid tariffs as well. This increase might be the first crucial step for the industry in lowering its debts. What's significant is that RJio also increased prices -- a possible sign the days of hypercompetitiveness are drawing to a close -- although RJio's rates continue to be much lower than those of its rivals. BSNL-MTNL merger and revival package Government-owned service providers Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) faced turbulence, with the payment of employee salaries being delayed for a few months. The administration finally approved the merger of the two companies and announced a revival package that included the injection of INR150 billion ($2.1 billion) into the business as well as the launch of a voluntary retirement scheme. Authorities also awarded 4G spectrum to the company at 2016 rates and approved plans for "asset monetization." (See Not Much Hope for India's BSNL and India's Ailing BSNL & MTNL Get Revival Package.) The two operators have found it tough to survive in the RJio era, mainly because they have lacked the 4G spectrum needed to provide competitive data services. — Gagandeep Kaur, contributing editor, special to Light Reading