Reliance Jio opposes ‘bailout’ for Airtel, Vodafone Idea

Reliance Jio, India’s largest telecom operator by volume of traffic carried, has opposed any ‘bailout package’ for Bharti Airtel and Vodafone Idea, claiming that the two companies have enough assets to pay the back taxes and other dues reinstated by the Supreme Court last week.

Instead, Reliance Jio said the government should look at implementing some of the long-promised reforms that would bring benefits to all telecom players alike.

Jio’s letter to the government comes close on the heels of the Cellular Operators’ Association of India (COAI) — which represents the interests of players such as Vodafone Idea and Bharti Airtel — urged the government to give financial support to players who have been hit by liabilities of around Rs 1 lakh cr after a recent judgment by the Supreme Court.

“We submit that COAI’s intent of using this as an opportunity to seek non-enforcement of the Supreme Court judgement and asking for relief is strongly objected by RJIL. The Judgement of Hon. Supreme Court is final and to be implemented as law of the land. These operators have capacity and enough monetisation possibilities to comfortably pay government dues,” Jio said.

“In view of the above, we request the Government to reject the COAI demand for a financial relief on the Hon’ble Supreme Court Judgement and their other outstanding liabilities including the spectrum payments etc. and all operators should be mandated to deposit applicable amounts within the three months time period, as mandated by Hon’ble Supreme Court. It will not be out of context to mention that any such package which prima facie appears to mitigate perceived financial strains, if granted, is likely to raise similar demands from other sectors such as aviation,” Jio said in its letter, a copy of which was released to the public today.

It is estimated that Bharti Airtel may have to pay around Rs 42,000 cr as a result of the Supreme Court judgment, while Vodafone Idea would have to shell out around Rs 40,000 cr.

The issue, which has been argued about in courts for two decades, relates to whether the government has a right to claim a part of the revenue generated by telecom operators from their non-core operations, such as handset sales and media distribution.

The original telecom licenses in India, issued in the early 90s, contained a provision for a fixed fee as well as free spectrum.

However, by late 90s, it was clear that high license fees were killing the sector, leaving little money for telecom operators to invest. The government, in response, offered a new ‘revenue share’ option under which it would take 15% of the total service revenue, instead of a fixed fee. The government would continue to give spectrum without any separate charge, increasing the amount of spectrum allocated as subscriber numbers expanded.

Telecom operators, who at the time were making only a tiny fraction of the revenue that they currently make, seized the opportunity and moved over to the revenue share regime.

By the early 2000s, mobile telephony took off big time in India, boosting the operators’ revenue, as well as the government’s cut.

At this point, the telecom operators filed a case against the government’s demands for a share of their overall revenue, including that from things such as the sale of ringtones and handsets.

The case, filed before Telecom Disputes Settlement and Appellate Tribunal in 2003, were largely won by the telecom operators, with the tribunal broadly upholding the principle that a revenue share under a license can only apply to the ‘licensed activity’ of the company, and not to all activities of the company.

This was challenged by the Government in the Supreme Court, which has — after a decade of hearings — overturned the tribunal’s stand, opening a Pandora’s box of liabilities for the operators.

In its letter, Reliance Jio blamed the operators for not setting apart a big enough fund from which to pay the government in case the case went against them. It also disputed the contention that the operators did not have enough money to pay the money demanded of them.

“..these service providers are themselves responsible for this issue, they were aware of the Government’s position and Hon’ble Supreme Court’s position as early as 2008 and 2011. However, in a most cavalier manner they continued to pay Government dues, as per their own interpretation, and are thus fully responsible for the current obligations emerging out of Hon’ble Supreme Court order.

“Further, we believe that they are internally also prepared for this but are currently just forum shopping to get a relief by threatening the Government, when the talks of perceived global economic slowdown and job-loss are already in the air.”

In case operators did not set apart money to meet such a liability, Jio said, action should be taken against them for violating accounting norms.

Jio also touched upon the question of low prices offered by Airtel and Vodafone Idea in response to Jio’s own tariff schemes. Most operators offer 1.5 GB of data per day and unlimited calling for around Rs 160-180 per month.

Jio said these offers and schemes were ‘below cost’ and amounted to ‘financial mismanagement’.

“..despite the COAI’s and these two continued highlighting of the so-called financial stress, these service providers have chosen to continue with their below cost tariffs, especially when there is no competitive pressure compelling these tariffs. Thus clearly, the financial difficulties of these operators are an effect of their own commercial decisions and Government should not be obliged to bail them out for their own commercial failure and financial mismanagement. In fact, this also point out to the possibility of this so-called financial crisis just being a ruse to get relief from the Government,” it said.

In the end, said Jio, it was not against reforms in the telecom sector — one of the most taxed segments of the industry in India.

Among the biggest peeves of the telecom operators in India has been that the government stopped giving free spectrum with the license around 8 years ago, but it continues to charge revenue share and license fee as if the spectrum is still given free. Telecom operators have spent lakhs of crores of rupees to ‘purchase’ spectrum, even though spectrum was supposed to be given free according to the original license.

However, Jio said, any such reforms should be directed at the industry as a whole, and not one or two players.

“We submit that the Government may consider the other industry issues of prospective rationalisation of levies and taxes as envisaged in NDCP-2018 and GST credit separately and not permit the COAI to intermix the investment infusing financial package for industry by mixing it with the legitimate license fee and SUC obligations arising out of past conduct of operators.