Preserve competition | Business Standard Editorials

lipped from:

Duopoly in telecom will hurt both consumers and govt

The government is reportedly looking at a relief package for the stressed telecom sector while also exploring ways to allow operators to pay their dues linked to adjusted gross revenue (AGR) over 20 years rather than 10 years currently. Even as the two together will primarily help cash-starved Vodafone Idea (Vi) to stay afloat, the ultimate beneficiary will be the consumers. Therefore, the government must not delay the relief package and ensure that the telecom sector is not reduced to a duopoly. The Department of Telecom (DoT) is of the opinion that no policy or package should be meant to benefit a specific entity, and rightly so. However, in this case, it should look at the bigger picture. The DoT’s stated mission is to empower citizens and facilitate socio-economic development by bridging the digital divide, among other goals. Similarly, the mandate of the sector regulator, Telecom Regulatory Authority of India (Trai), is to regulate the telecom services in a way that protects the interests of the service providers and consumers, while ensuring orderly growth in the telecom sector. A duopoly situation, if Vi goes under, could turn anti-competitive and anti-consumer.

Some of the recent developments in Vi suggest that the telco has reached the end of the road unless the government steps in with a meaningful package for the telecom sector. After offering to sell the Aditya Birla group stake in Vi to the government or any other entity that could keep the telecom firm afloat, industrialist Kumar Mangalam Birla stepped down as non-executive chairman of Vi. Mr Birla’s desperate plea to the government to rescue the firm through a letter written to the cabinet secretary found support from rival Bharti Airtel too. In a post-earnings call, Bharti Airtel Chief Executive Officer Gopal Vittal had said that a large country like India needed at least three private telecom players. That is an important reason for the government to come out quickly with steps to ease the financial stress in the telecom sector so that it’s not reduced to a duopoly.

A duopoly scenario will not just adversely impact consumers, but also possibly hit the government exchequer as telcos share a part of their revenues with the government. That said, the government must ensure that the telecom sector is not treated as a cash cow and, therefore, review the statutory dues. Besides the relief package it’s readying, the DoT must revisit the components of AGR, which includes interest income, dividend, profits on the sale of assets, insurance claims, and forex gains. Telcos have been caught in a legal tangle for long over the calculation of AGR dues with no reprieve so far. Even the reserve price for the upcoming 5G spectrum auction should be rationalised to a level that would prevent telcos from any further bleeding.

Telecom companies, on their part, have to act too to redeem the stressful situation prompted by a combination of factors including deep discounts offered initially by Reliance Jio and then replicated by others. Tariffs must be rationalised, though without Trai’s intervention of setting a floor price. Small beginnings have been made by telcos in the post-paid segment, but to make a real difference in their financial health, they need to ask the larger universe of pre-paid telecom users to shell out more for the services. That, along with the government package, could salvage the telecom industry, which was a bright spot for India not too long ago.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s