Make it clear government wants three players
Dither will debilitate India’s telecom sector. The government needs to make it clear whether it wants three private players to remain in the market or it is okay with a duopoly. And this is not just a matter of making an announcement. If troubledVodafone IdeaNSE -10.30 % (Vi) is to survive, it needs relief on its debt-servicing obligation and fresh infusion of funds. If the government provides substantial relief, it would demonstrate that it wants to have at least three players in telecom. Once that is established, it is possible for third parties to invest in the company.
The relief that the government offers Vi could have several components. One could be a general lowering of the extortionate shares of revenue the government appropriates by way of licence fee and spectrum usage charges. This would benefit all players and only be fair, as the steep revenue shares for licence fees and spectrum charges made sense in a regime in which spectrum was allocated without upfront payment along with the licence, in exchange for a relatively low entry fee. Now that spectrum is auctioned off at high prices, there is no rationale for cornering a large part of telecom revenue as licence fee and spectrum charges. Another component of relief would be to convert a good part of the debt into equity. For Vi, more than five-sixths of its total debt of ₹1,80,000 crore is to the government. The government could make a similar offer to all telcos. Only those in desperate straits would be keen to have the government as an equity holder occupying seats on the board. With a market capitalisation under ₹22,000 crore, the government would be the predominant shareholder, were it to convert ₹1,00,000 crore of debt into equity. Finally, the government could offer a three-year moratorium on payments to the government.
It would be a big mistake to merge Vi with any State-owned telco. With financial relief from the government and fresh capital infusion, Vi can improve rapidly. The accompanying rally in its stock price would benefit the government. The point is to act.