Duopoly concerns in telecom

| Updated on July 13, 2021

Our telecom market is big enough for existing majors to thrive, making data accessible

India’s telecom market is on the brink of becoming a duopoly with two of the four major operators struggling to stay afloat. While Bharat Sanchar Nigam Ltd (market share of 10 per cent in the wireless segment, including MTNL) is in such a dire situation that it cannot even pay salaries to its employees, Vodafone Idea (market share of about 25 per cent but falling rapidly) is fast running out of cash, raising concerns about its survival. Affordable telecom services are crucial to ensure equitable access to data — online educational resources, general information, health services, consumer goods and other services. India’s telecom market over the years has been intensely competitive, ensuring that consumers got good deals on tariffs.

Now, consumers have limited options with Reliance Jio and Airtel cornering two-thirds (a rising figure) of the telecom market. As a result, tariffs have increased by 15-20 per cent over the last year. Debt-strapped Vodafone Idea has been losing over a million users every month on average as it had to shut down thousands of cell sites across the country. It is caught in a negative spiral: in the absence of a material rise in its operating cash flows, the operator does not have the ability to make sufficient network investments and retain consumers. The company has a debt of over ₹1 lakh crore and had declared losses of nearly ₹7,000 crore in the fourth quarter of 2020-21. The company has been trying for external funding for over a year without much success. Given the legal complications around selling of spectrum, existing promoters’ unwillingness to pump in more equity, pending AGR dues, and the ongoing tax dispute with the Centre, it is unlikely that any investor would want to invest in the operator.

In this context, the Centre must take four steps to ensure that the telecom market does not become a duopoly. First, bring down levies and taxes on telecom companies. Telecom companies pay nearly 30 per cent of their revenues to the Centre in addition to the upfront spectrum fees after each round of auction. The concept of revenue share, which was introduced in 1999 when the spectrum was given on subscriber-based criteria, should be done away with. Second, appoint a credible, independent management to run BSNL. The once-dominant public sector company has been reduced to a mere footnote, thanks to years of bureaucratic inefficiencies in decision making. Third, all operators should be given a one-year moratorium on AGR payments so that cash generated from operations can be invested back into rolling out much-needed broadband infrastructure. Finally, reduce the spectrum price for the next round of auction to keep services affordable. This would ensure that the consumers will benefit from competitive intensity in the market. India is expected to have over 900 million active internet users by 2023, up from 700 million now. It is a large enough market for three private players and one public sector company.

Published on July 12, 2021

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