Telecom duopoly is not a good idea

 Aditya Birla Group chairman Kumar Mangalam Birla’s letter to Cabinet Secretary Rajiv Gauba about the debt-ridden Vodafone Idea Ltd, in which he holds a 27 per cent stake, is an SoS that has important implications for the future of the telecom industry in India. Birla finds the company no longer viable

and has offered to hand over his stake to the government or any other entity that can keep it operational. Vodafone Idea has a share of 24 per cent in a market dominated by two other players, Reliance and Airtel. Two public sector companies, BSNL and MTNL, have about 10 per cent share. A 24 per cent share is not bad, but the company finds itself in an environment in which some factors and circumstances have made it unviable. The telecom sector once had too many players. If Voda Idea goes down now, it will be reduced to a duopoly which will be dominated by one company.

Voda Idea has been losing ground for some years. It has an Adjusted Gross Revenue (AGR) liability of Rs 58,254 crore, has to pay Rs 96,270 crore by way of deferred spectrum payments and owes Rs 23,080 crore to banks and financial institutions. The sector has seen a lot of tumult and the entry of Reliance Jio in 2016 hit other players hard. The Supreme Court’s decision on the AGR dispute, which allowed inclusion of non-telecom revenues in the calculation of fees, increased the companies’ liability. Last month, the court dismissed a review plea in this respect. Voda Idea has been trying to attract foreign investors but according to Birla, potential investors would want some assurances from the government before considering any investment. He says that they want clarity from the government on the AGR liability, a moratorium on spectrum dues, and a floor pricing regime above the cost of service. Above all, the letter says, an assurance is needed from the government that it wants a three-player market.

The government’s response is not known. The letter was sent in June, and one can only guess as to the reasons for a lack of response. Birla resigned on Wednesday as chairman of the company. The government’s response has to be in terms of both policy and revenues, and there are constraints in both areas. It should consider how healthy competition can be brought back into the sector. The collapse of Voda Idea will hurt not only its customers but the customers of the other two service providers also. In a duopoly, all customers will be at the mercy of the service providers. Only healthy competition among multiple players can ensure better quality of services and advancement of the sector with improved terms of service and technologies.