Archive for September, 2020

Telecom Apocalypse in India 2020

Posted by Dev Baul - 20/09/20 at 12:09 pm


Unified Licensing policy 2012 separated spectrum and license prices. Spectrum would be auctioned to Mobile telephony operators only. For all telecom-related services license fee would be charged @8% of Adjusted Gross Revenue. Adjustments being in the nature of taxes and pass-through charges paid off to other network We explore two specific  points that  we believe have escaped scrutiny in the  spate of current commentary on the  issue.

1.   Absurd interpretation of what constitutes “Adjusted Gross Revenue”

Revenue of a telco accrues from its core telecom based operations and   other income from rentals, treasury operations etc. Most analyses by industry experts/journalists have flagged off inclusion of ‘other income’ as the precipitating   factor for this huge licensing fee demand. “Other Income” may be one of the causes but definitely not the main cause. Operators like Airtel and Vodafone would have   factored this in and   minimised the effect of ‘other income’ in their P&L. It is the interpretative definition of ‘core incomethat is causing the heartburn. It is our hypothesis that telcos calculated their   licence fee liability as a percentage of their realised revenues after setting off cash and dealer discounts. Cash discount is the difference between TRAI prescribed price and the telco offer/plan price that the customer actually pays. Given the price levels prevailing today, cash discounts are very high. As against this, the Government is calculating the licence fee payable as a percentage of the TRAI prescribed!! It is like selling a Rs 100 service  at a 40% discount for Rs 60  and then paying a licence  fee   of Rs 8 ( 8% of notional revenue) instead of Rs 4.80 (8% of actual revenue)!! To give another analogy, if   a similar licence fee  regime is imposed on the hotel industry, they  would  have to  pay licence  fee as  a percentage of their  rack rates and not  at the rates at which the rooms are   let out. All of us know that not  a single room is let out at rack rates It is this difference in the  interpretation  of  the liability that started  with a  couple  of thousand crores and has now snowballed into 50+K crore millstone. Telcos kept on paying licence fee based on real revenues and hoped  for a quashing  of  this absurdity of licence fees based on notional revenues

2.  Selective application of the law amongst the mobile operators

In 2016, Jio launched its 4G services and gave it free (100% cash discount over TRAI prescribed price) for nearly a year. In the process they   got around 50 Cr customers and became the No 1 Telco. No revenues accrued as services were given free and thus no licence fee was payable except a minimum fee based on a presumptive AGR. It may be noted that concept of licence fee based on a percentage  of the TRAI price(notional price) was not applied in Jio’s case !!  Government was deprived of licence fee from Jio  based on 8% of notional revenue  from 50K customers. The figures are not exact but are in the ball park. Jio also gave free handsets to customers  against an interest free 3 year deposit of Rs 1500. This implied this was not revenue and thus no licence fee was payable. It was a triple whammy for the government
  • No licence fee  accrued for the  first one year of operation
  • No GST/Sales Tax  revenues  as there was no sale of handsets
  • Lesser Income tax as all handset purchases were expensed off as  sales promotion expense in the P&L

Resulting Scenario

In light of Vodafone’s  deposition to the  SC  stating their inability to pay and BSNL  defaulting  on salary payments  for last six months it is abundantly clear that  we  are  going  back to a  monopolistic   or  at best  duopolistic market. We will  be moving to a fifth generation technology   in  a first generation market with the attendant  monopolistic market malaises. TRAI’s task will be made simpler  as the incumbent cartel of two will  decide on the prices. Having  experienced the BSNL-MTNL services with QoS of high tariffs and procurement/repair  time , it will be interesting to see  how this hegemony unfolds


Conclusions  and surmises  arrived at in this  write-up are predicated on information  available in public domain. References are not cited  for ease of reading  and the fact  that this is  more of an RFC  document purporting to throw open the debate. Interested  may write to  for  further exchanging of notes.

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Strangler Fig Syndrome in the Indian Telecom Sector

Posted by Dev Baul - 07/09/20 at 03:09 pm

Strangler Fig Syndrome

Life cycle of a Strangler fig provides for a fascinating drama. They literally kill other trees to propagate and grow. It starts as a fig seed dropped on a host tree by a carrier bird. The seed ensconced in a crevice of the host tree germinates and sprouts an aerial root. At this point the seedling does not harm the host tree. Situation turns interesting, once the root reaches the ground. It grows rapidly forming a mesh of woody branches around the host tree. The roots thicken and tighten around the host tree trunk literally strangling its growth. Its roots in the ground   amass all the nutrients   depriving the host tree. In the meanwhile, the crown of the fig plant grows foliage at the top competing for sunlight with the host tree.  Deprived of food and sunlight the host tree starts rotting and eventually dies. The dead host tree decomposes leaving the strangler fig standing on a column lattice roots around an empty core.

Figure A Strangler Fig sapling
Figure B Strangler Fig encircling the host tree
    Figure C Fully grown Strangler fig with hollow in place of the host tree

Some naturalists believe that birds do their own farming and disperse seeds of fruit bearing trees. On the other hand, naturalists like David Attenborough think that it is the plants’ strategy of propagating – the seed of the plant has an outer coating that stimulates a sticky secretion in the gut of the bird. This means that the bird has to wipe its cloaca on a twig to remove the dropping – thus the seed entrenches itself on the host tree and starts its cycle of life. Strangler Figs change the whole treescape – all other types of trees are replaced by figs (very evident in Amazon rain forests).

We dwell on the players and the process in some detail as we will see something akin panning out in the Indian Telecom market – the similitude is striking.

Strangler Fig and the Indian Telecom Market

Over the last eight weeks (June- July 2020), an Indian   telecom company was in news for getting   investments worth $30 billions   from multiple   investors including the two of the big 4 viz. Google, Facebook. This helped the Indian telco to become debt-free and the Telco’s principal shareholder to move up the Billionaires list to the fourth position. All this happened in midst of a severe bear market and the Telco’s parent company’s stocks were one of the few gaining stocks.

Analogies as a rule go so far and no further, but let us stretch it bit and consider Indian Telecom as a diversified jungle of host trees – trees being metaphors for existing telecom service providers; the said Indian Telco as the carrier bird; and Google / Facebook as the Strangler Figs.

Let us examine how the strangler fig syndrome is panning out in the Indian telecom sector now

  • Before 2016 the Indian Telecom market was the fastest growing and the second largest market in the world with multiple competing telcoes thriving and innovating to stay in the race. The customer never had it better.
  • In 2016 a new Indian telco entered the market and offered its services free   for the first one year. In the process they gained around 35% market share and the Indian state lost AGR revenues as no revenues accrued for the Telco
  • Two players viz, the state-owned BSNL and privately-owned Vodafone are one the verge of shutting down – one main reason being loss of   business due to the predatory pricing war.
  • Google and Amazon have managed to drop the proverbial fig seed. Between the two of them, they virtually control   the content and the app market. Now with 7% and 9% stake respectively in the Indian Telco, Facebook and Google will   surely be represented on the board.
  • Facebook
    • A couple of years ago Facebook had tried a backdoor entry into the Indian market through its offering of Free Basics partnering with the now dead RCom. Thankfully TRAI banned it on grounds of breach of net-neutrality
    • Thus Free Basics in a new avatar will make a grand entry as an introductory free service –  a practice perfected by the Indian Telco when it launched its 4G/LTE   service in India.
    • As is known, Free Basics would provide free access to a select group of apps and services from partnering companies. This of course   would put the non-partnering companies at a disadvantage and perhaps out of business
  • Google
    • In case of Google the carrier telco would get a huge anti-competitive advantage. If telco A is in a position not to charge internet access fees for Google service while telco B is not, it is a no-brainer which telco the customers would flock to.

In next couple of years, most telecom service providers in the Indian Telecom market will have been strangled by the Googles and Facebooks –  the metaphorical figs.  The market will have moved from a free-for-all competitive market to a monopolistic or at best a duopolistic market controlled by Facebook-Google-Jio behemoth. The customer will have to get used to a set of services with Contents, Service Quality and Price Points provided by the behemoth.


Conclusions and surmises arrived at in this write-up are predicated on information available in public domain. References are not cited for ease of reading and the fact that this is more of an RFC document purporting to throw open the debate. Interested  may write to  for  further exchanging of notes.



If you enjoyed this article please consider staying updated via RSS. Links to your own social media pages could be added here.