July 24, 2021

Can India avoid a telecom duopoly? – Marseille News

Closing the infrastructure and access gaps will require significant investment and competition. The release of Vodaphone Idea will hurt both goals.

Sunil Mittal, chairman of Bharti Airtel, recently said that it would be “tragic” if India’s telecommunications access market were to be reduced to just two competing operators. He was probably referring to the possible exit of the financially troubled Vodafone idea and the growing uselessness of the public operators, BSNL and MTNL. That would essentially leave the market to Reliance Jio and Airtel. An impending duopoly, or the exit of a global telecommunications major, are both worrisome. They deserve a careful and creative response.

The Indian telecommunications market has experienced monopolies as well as hyper-competition. Twenty-five years ago, government alone could provide services. Ten years later, there were nearly a dozen competing operators. Most service areas now have four players. The former monopolies, BSNL and MTNL, are now small players and often overlooked – as Mittal seems to have done – in assessments of the future of the market.

Reduced competition is a cause for concern. The competition offered relatively low prices, advanced technologies and an acceptable quality of service. These gains are now threatened. There is a long way to go to expand access as well as the capacity of the network. India’s large population and almost exclusive reliance on mobile wireless technologies may confuse the analysis. For example, India is ranked second in the world, after China, for the number of people connected to the Internet. However, it is also first in number of people not connected. Over 50% of Indians are not connected to the Internet, despite considerable progress in terms of network reach and capacity. India leads overall mobile data usage. However, its data usage per capita or per device is low. It has an impressive 4G mobile network. However, its fixed network, wire or optical fiber, is sparse and often poor. The rollout of 5G has not yet started and will be costly. The pandemic has exposed major gaps in existing access, even prompting the Chief Justice of the Supreme Court to seek action from the Minister of Communications.

Closing the infrastructure and access gaps will require significant investment and competition. The release of Vodaphone Idea will hurt both goals. The company has been facing an existential crisis since it was hit hardest by the Supreme Court ruling on the AGR issue in 2019, with an estimated liability of Rs 58,000 crore.

Interestingly, the interest and penalty far exceed the principal amount in dispute. The court allowed the government to give businesses more time to pay. However, this might not be enough unless Vodafone Idea can raise substantial funds or improve its income through the services. He wants the Telecommunications Regulatory Authority of India (Trai) to set floor prices to improve. If his efforts fail and he goes out of business, that would also be a setback for the government. This will hurt its chances of recovering the massive dues as well as its efforts to be an attractive destination for large investors.

The shutdown of Vodafone Idea is arguably a greater concern than the declining role of BSNL and MTNL. Government companies have yet to deploy 4G and have gradually become less competitive. Vodafone Idea, on the other hand, still accounts for around a quarter of subscriptions and revenues and can boast a quality network. It has been rated the fastest, for three consecutive quarters, by Ookla, a web service that monitors Internet metrics. India cannot afford to waste such network capacity. The company’s liabilities will deter any potential buyer.

One possible solution would be to combine the resources of MTNL and BSNL and Vodafone Idea through a strategic partnership. Creative government action can save Vodafone Idea and improve the competitiveness of BSNL and MTNL. This could help secure government contributions, investments and jobs. Let us recall here that thirty years ago, the conditions imposed by the Australian government on the entry of its first private operator, Optus, required the latter to take over the loss-making public satellite company, Aussat. Similar and original thinking may well be the key to escaping impending collateral damage.

It is not trivial to expand competition in the Indian telecommunications market. Especially since there are no longer any major regulatory barriers to entry. Any new private actor will be largely motivated by commercial considerations. Global experience suggests that entrenched incumbents have considerable advantages. New players are intimidated by large investments – and a lot of patience! – necessary to set up networks, attract existing customers and sign new ones.

However, regulators and policymakers have other options to expand the choice of telecommunications consumers. Their counterparts in mature regulatory regimes, for example in the European Union, have helped develop large resale markets. Recognizing the limited influence of small players, regulators require the incumbent to offer wholesale prices to resellers who then extend the choice to end users.

This has been practically impossible in India. There is a near absence of Virtual Network Operators (VNOs) and other noteworthy resellers. One of the main obstacles to resale is India’s royalty regime which requires licensees to share part of their income with the government. Thus, resale could harm the revenue of the Treasury, unless resellers are subject to identical levies. Naturally, levies – and therefore additional reporting and compliance – are a deterrent for smaller players. The disincentive arises from revenue-based levies, which incur considerable compliance costs. It would almost disappear if the levies were replaced by, for example, a flat rate calculated 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 cannot.

The author consults on regulatory and policy issues in the telecommunications and Internet space.
mahesh.uppal@gmail.com

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