News: The board of Vodafone Idea (Vi) has approved the conversion of part of their liability owed to the government into equity.
Accordingly, Rs 16,000 crore of the interest on the deferred spectrum and adjusted gross revenue (AGR) liabilities will now be converted to government equity. This makes the government as the single-largest stakeholder, owning 35.8 percent of the entity.
The government proposed this relief package to save the Telecom operator from exiting and to protect competition in a market.
In this context, this article will discuss the issues troubling the Telecom sector in India.
What are the issues affecting the Telecom sector in India?
Litigation issues: leading to drain on resources. For example, retrospective taxation issue related to Vodafone-Hutch offshore deal.
Access to government is unequal: Instances of inequity have impacted the competition in the sector. For example, allowing “back door entry” into the mobile sector in 2003, Spectrum assignment through “first come first served” (FCFS) method, allowing Jio’s aggressive strategies in 2016.
Bureaucratic inertia: it results in decisions that favour one over the other operator not because there is bad intent, but because the system is such that the status quo is the dominant response.
Other reasons: Intense price war, Unreasonable definition of AGR, An extractive spectrum auction regime and, the development in technology, are impacting the revenue streams of operators.
Telecom is not the domain of government: After the implementation of this relief package, India will own stakes in two out of four major telecom operators in the country, namely BSNL (100 per cent) and Vi (35.8 per cent).
Excluding China, no other country in the world has wholly-owned government entities in the telecom sector. Telecom, almost everywhere, is the domain of private enterprise. In France and Germany, the government has diluted its stakes in erstwhile public sector entities to a minimum. Even, the Chinese government has been encouraging private sector participation to boost competition in a market.
What is the way forward?
The current telecom licensing policy, prohibit any company/legal person either directly or through its associates from having substantial equity holding (defined as equity of 10 percent or more) in more than one licencee company in the same area for the same service.
Accordingly, in order to comply, the government may have to dilute its share or explore the option of merging BSNL and Vi.
In this regard, the government should explore the option of merging BSNL and Vi as it is attractive for multiple reasons.
-Both BSNL and Vi can share their infrastructure.
-It can help revive Vi.
-Merger between these two entities can ensure fair competition within the sector.
Source: This post is based on the article “There must be fair competition in telecom sector” published in Indian Express on 13th Jan 2022.