Win-Win situation for Telecom

Another chapter in the ongoing saga of India’s telecommunications sector has just ended. The board of directors of Vodafone Idea (Vi) has authorized converting a portion of the company’s government liabilities into equity. As a result, about Rs 16,000 crore in the deferred spectrum and adjusted gross revenue (AGR) liabilities will be converted to government stock, making the government the single-largest stakeholder with 35.8% ownership.

If the debt-to-equity conversion gets through the Department of Telecommunications (DoT) onerous protocols, Vodafone Group and Aditya Birla Group’s shareholdings will be reduced to 28.5 percent and 17.8 percent, respectively. Because this is part of the relief package suggested by the government in October 2021 to keep the troubled operator from departing and therefore protect competition in a market swiftly speeding towards an effective duopoly between Jio and a stressed Airtel, there’s a good chance it will happen.

Vodafone Idea, Airtel, and Jio are all well-managed businesses with arguably similar access to technology, network services, financial and marketing expertise. In a situation that may easily have been the envy of the world, one would expect competitiveness to thrive. However, government access appears to be unequal (at least in terms of outcomes), which is the enduring lesson from the prior two decades or so of experience. This flaw in the system should be addressed, and the system should not only be fair but also considered fair to all entities.

In India, inertia can lead to judgments that favor one operator over another, not because of malice, but because the system is set up so that the status quo is the majority response. This should also be avoided as much as feasible by enlisting high-level intervention.

The government has been struggling to bail out a heavily indebted industry in recent years, with the primary reasons (a few of which are also stated above) being an intense and crippling price war, an unreasonable definition of AGR, an extractive spectrum auction regime, and, of course, the march of technology negatively impacting the revenue streams of operators straddling legacy networks. Following the completion of this relief plan, the Indian government would own 100% of two of the country’s four largest telecom providers, BSNL and Vi (35.8 percent). The combination of BSNL and Vi might help kill two birds with one stone. A convergence of expert management and public sector assets can help revitalize Vi and, on the other side, resurrect a floundering BSNL.

To protect against an aggressive entrant like Jio, Vodafone and Idea Cellular planned to merge in 2017 to form “Vi.” As a result, a merger between these two companies might assist protect both BSNL and Vi’s interests while also ensuring that the Indian telecom sector maintains at least three strong participants in the market, which is the minimum requirement for fair competition. If ever there was a win-win situation for telecom, this is it.

, , ,

Leave a Reply

Your email address will not be published.