Analysis: Bharti gets away easy

The penalty that the government is demanding is much smaller than the competitive advantage Bharti gained by providing subscriber local dialling

When a book on corporate governance in India is written, telecom companies are unlikely to find a place in it. The largest player Bharti Airtel  earned Rs 4,258 crore as consolidated profit in FY12, and had Rs 9,000 crore as penalties and levies against it. Obviously, these claims are being contested and will take years to settle.

The issue is not only of Bharti, but almost all the telecom companies, which are in a similar boat. It has been reported that telecom companies collectively have claims and penalties to the tune of Rs 20,300 crore against them.

According to news reports, this time around Bharti Airtel is likely to be charged with a Rs 650 crore penalty for providing national and international long-distance dialling (NLD/ILD) services in 13 circles between 2000 and 2005. The telecom ministry had asked both Bharti and Vodafone (erstwhile Hutch) to stop providing the facility in June 2003 saying this amounted to violation of national routing plan. SLD is a facility that allows roaming customers to be on the local network and thereby avoid paying roaming and STD charges.

According to the reports, Bharti continued to provide this service despite the telecom ministry’s direction and thereby avoided paying the levy which was to be charged with every long-distance call. The ministry now wants to recover the loss incurred to the exchequer in the form of licence fee and spectrum charges.

Stripped of the jargon, Bharti sold a product for which it had not received any rights to do so. The Economic Times report quotes a company source saying that there was no revenue or profit gain to Bharti by offering this facility to its customers. But Bharti did have the advantage of acquiring customers. The facility of STD calls at the same rate as local calls was the slogan for attracting clients.

While the penalty may help the government recover some amount, the competitive landscape in such a scenario changes. While some players gain, a lot of the competitors end up losing market share, which is permanent.

When an iron ore company mines ore without all the permissions, the Supreme Court imposes a ban on the entire operation of that company. Public sector companies that have played by the books, despite getting a step-motherly treatment from the government are the main sufferers.

Further, penalising these telecom companies, nearly eight years after the violation makes little sense. In March 2004, Bharti made a profit of Rs 585 crore (consolidated) and in March 2012 it made a profit of Rs 4,258 crore after touching a high of Rs 9,366 crore in March 2010. The scenario could have been different had it followed the rules in 2003.

It is not the first time that Bharti has not followed the authorities. Bharti, along with Vodafone and Idea, had been sharing 3G airwaves with each other without having any rights to do so. They were operating in areas where they did not have licences to do so. DoT had slapped penalties totalling Rs 1,200 crore on the three companies after they had run the operations successfully for a long time.
 
With the umpire blowing the whistle well after the game is over, it is not a surprise to see that the telecom sector remains shrouded in controversy.