Phone-a-friend to VI's help

Phone-a-friend to VI's help

By Prof. V. Sridhar, IIIT Bangalore

The recent announcement by Vodafone Idea (VI) on the dilution of promoters’ stake to the government, that has been in the works for quite some time, is indeed a welcome step. This provides the much needed relief to VI for converting its debt including interest on spectrum auction payments and other dues payable on Adjusted Gross Revenue in to government equity. The government equity, if the proposal goes through will be around 35 percent with Vodafone Group holding 28.5 and Aditya Birla group at 17.8 percent respectively. The market has not taken this well with the shares of VI tumbled by 20 percent. What does it hold good for the Indian telecom market?

The regulatory burden has stifled VI for a long time with the telco struggling to invest in its network and services. With the new structure, and with the debt off its balance sheet, it may be able to raise capital required for network expansion, especially for 5G networks and services. The moot question is how will the Government as a major shareholder manage the new firm as well as the other State Owned Enterprises (SOEs) -  BSNL and MTNL?

While the U.S. never had an SOE in telecom, China on the other hand has three– China Mobile, China Telecom, and China Unicom with valuations of around $135, $30 and $17 billion respectively. Globally, with the exception of China most countries have reacted to the realities of the telecom market and acted accordingly. Notable examples being Telstra of Australia and British Telecom of the U.K.  In both these cases, the government control was drastically reduced; they are listed in the stock exchange; with improved and agile management structure and accountability to shareholders, the companies have performed remarkably well, despite competition.  Are we going back in history by the Indian government taking over a private operator?  

This is a unique opportunity for the Government to take the “Digital India’ initiatives in full throttle. While the private Telcos have done a remarkably good job of connecting the urban India and ushering an era of 4G to most of their subscribers, BSNL/MTNL combine have had their setbacks. The market share of BSNL/MTNL in mobile services is below 10 percent that declined from about 14 percent  in 2008. Included in to the list of Navratna Public Sector Units in 1997, MTNL (the operating company in Delhi and Mumbai)  is on the verge of losing its coveted status, having accumulated losses at the rate of more than Rs 2,000 crores per year. Though the issue of merging BSNL and MTNL to form a single company with pan-India assets and subscriber base has been surfacing again and again, it is put in to the back burner by successive governments.

The reasons for the decline in the performance of BSNL/MTNL despite having a huge asset base including large amount of radio spectrum, tower infrastructure, and a near monopoly in fixed Landline are: (i) inadequate marketing of their services (ii) slow decision making with respect to purchase of equipment and managing contracts with Managed Service Providers and (iii) inadequate management flexibility in pricing plans, and asset sharing arrangements, to name a few.

Here is a chance for the government, to clearly demarcate the role of its two SOEs: BSNL/MTNL combine to connect the unconnected regions of the country to provide universal Internet connectivity; and the new firm to provide effective competition to the two incumbent private telcos, especially in metros, urban and semi-urban areas. Though the Indian telecom witnessed unprecedented competition prior to 2016 with 8-10 operators vying for market share in each telecom circle, and with Herfindahl Hirschman Index (HHI) touching 0.18 (indicative of near perfect competition), it has been consolidated to three. With a billion subscriber base, there is room for 4-5 operators in the country, and the new firm should definitely fit in to the groove. By combining the strength of the efficiency of the private sector with the State backing, the new firm should be able to improve both mobile and fixed landline broadband infrastructure in the country. Public projects in the areas of governance, health, and education require digital infrastructure and the new firm should take active part in building infrastructure and the associated services for the same. The top management of the firm should still consist of professionals with an agile management structure that can continue the best practices in vendor management, and customer centricity. According to Speedtest Global Index, (Speedtest.net), India is ranked 112 (out of 138 countries) by average mobile broadband speed and 69 (out of 181) in fixed broadband speed. Hence there is a lot of gap to be covered and with restructuring, the new firm may be able to improve our position, by providing effective competition in the sector.

By being professional, responsive and a responsible entity, the new firm can in fact set new standards in quality of service, superior technology, infrastructure deployment and customer relationship to effectively compete with the private firms and provide the required effective alternative to telecom and Internet users in the country. 

(This article first appeared in The Economic Times dated 12 January 2022)