Share this :

Context

Sunil Mittal, the chairman of Bharti Airtel, said recently that it would be “tragic” if India’s telecom-access market was to be reduced to only two competing operators. He was probably referring to the possible exit of the financially-stressed Vodafone Idea and the increasing irrelevance of government-owned operators, BSNL and MTNL. This would essentially leave the market to Reliance Jio and Airtel. A looming duopoly, or the exit of a global telecommunications major, are both worrying. They deserve a careful and creative response.

Thus Far

  • India’s telecom market has seen monopoly as well as hyper-competition.
  • Twenty-five years ago, the government alone could provide services.
  • Ten years later, there were nearly a dozen competing operators.
  • Most service areas now have four players.
  • The erstwhile monopolies, BSNL and MTNL, are now bit players and often ignored.

The reduced competition is worrying. Competition has delivered relatively low prices, advanced technologies, and an acceptable quality of services. These gains are now at risk. There is a long way to go in expanding access as well as network capacity.

The Indian Telecom Irony

  • India is ranked second globally—after China—in the number of people connected to the internet. However, it is also first in the number of people unconnected.
  • Over 50% of Indians are not connected to the internet, despite giant strides in network reach and capacity.
  • India’s per capita or device data usage is low. It has an impressive 4G mobile network. However, its fixed network—wireline or optical fibre—is sparse and often poor.
  • 5G deployment has yet to start and will be expensive.

Vodafone Tragedy

Filling the gaps in infrastructure and access will require large investments and competition. The exit of Vodafone Idea will hurt both objectives. The company faces an existential crisis since it was hit hardest by the Supreme Court judgment on the AGR issue in 2019, with an estimated liability of Rs 58,000 crore.

The closure of Vodafone Idea is an arguably greater concern than the fading role of BSNL and MTNL. The government companies are yet to deploy 4G and have become progressively less competitive. Vodafone Idea, on the other hand, still accounts for about a quarter of subscriptions and revenues and can boast of a quality network.

It has been adjudged the fastest, for three consecutive quarters, by Ookla, a web-service that monitors internet metrics. India can ill-afford to waste such network capacity. The company’s liabilities will deter any potential buyer.

Vodafone+MTNL+BSNL ?

A possible way out could be to combine the resources of the MTNL and BSNL and Vodafone Idea through a strategic partnership. Creative government action can save Vodafone Idea as well as improve the competitiveness of BSNL and MTNL.

It could help secure government dues, investment, and jobs. It is worth recalling here that, about 30 years ago, the Australian government’s conditions for the entry of its first private operator, Optus, required the latter to take over the loss-making government satellite company, Aussat. Similar out-of-the-box thinking may well be key to escape the looming collateral damage.

It is not trivial to expand competition in India’s telecom market. Especially since there are no major regulatory barriers to entry anymore. Any new private player will be driven largely by commercial considerations. Global experience suggests that well-entrenched incumbents have massive advantages. New players are daunted by the large investments—and much patience!—needed to set up networks, lure existing customers and sign new ones.

However, regulators and policymakers have other options to expand choice for telecom consumers. Their counterparts in mature regulatory regimes—e.g., in the European Union—have helped develop extensive markets for resale. Recognising the limited influence of smaller players, regulators mandate that the incumbent offer wholesale prices to resellers who then expand choice for end-users.

This has been virtually impossible in India. There is a near absence of noteworthy virtual network operators (VNOs) and other resellers. A key barrier to resale is India’s licence fee regime which requires licence-holders to share a proportion of their revenues with the government. Thus, resale could hurt exchequer revenues unless resellers are subject to identical levies. Understandably, the levies—and consequently additional reporting and compliance—is a disincentive for smaller players. The disincentive flows from levies based on revenues which comes with considerable costs of compliance. It would almost vanish if the levies were replaced by say, a flat fee computed objectively.

The ball is in the court of the regulator and the government. They have options. But will they take decisive action to exercise them? It will be ‘tragic’ if they can’t.


Print Friendly, PDF & Email
Share this :