Wrong call

The decision by Vodafone Idea to offer 35.8 per cent stake to the government is a bad idea. It neither addresses the core issues facing the debt-laden telecom company, nor does it guarantee that the telecom market will not become a duopoly. At the centre of Vodafone Idea’s woes is the ₹1.7-lakh crore debt it has on its books. In addition to meeting its debt obligations, the operator will need another ₹50,000 crore this year to upgrade its existing 4G networks and for rolling out new services based on 5G technology. It is clear that fresh cash infusion is the only way Vodafone Idea can stay competitive with Reliance Jio and Airtel. The existing promoters of the company have refused to bring fresh equity so far, and banks are cagey about lending further. Other than saving ₹16,000 crore in interest payments, the equity deal with the Centre will not reduce the operator’s overall debt pile; nor will it result in improving cash flows. At best it is a stop-gap arrangement that could provide temporary relief to the operator. The company is hoping that its efforts to find a new strategic investor could gain momentum if the government becomes the largest shareholder. But one can’t be sure if investors will see this as a confidence-building measure or as a desperate move by an operator pushed to the corner.

That said, the effort to prevent the telecom market from turning into a duopoly cannot be dismissed out of hand. If Vodafone does not survive, it will not only reduce options for consumers but also deny the Centre future receivables, amounting to ₹1-lakh crore. That said, merely propping up Vodafone Idea without its capacity to offer a real alternative to consumers, makes little sense. The focus should be on making the operator thrive, not just survive. The Centre should endeavour to reduce levies such as licence fees and lower spectrum prices. The onus lies on the company to successfully complete its capital raise, accelerate network investments, and stem subscriber losses because India’s one billion strong customer base deserves a robust third player in the market.

This move comes at a time when the government has been trying to divest equity in many PSUs. Taking a major stake in a private company runs contrary to the policy, spelt out at the start of this fiscal, that the government will exit all commercial activities except those which are strategic in scope. To the extent that telecom is strategic, the government has BSNL and MTNL, and is struggling to keep them operational, budgeting for nearly ₹60,000 crore in 2021-22. The agreement with Vodafone Idea could also set a precedent for struggling companies in other sectors to seek a similar rescue plan, overturning pro-market, reformist policies of the last three decades. In every mature market, competitive forces are allowed to play out. That includes the telecom sector, which has proven to be the graveyard for over 20 companies over the last two decades. The government’s policy departure appears completely out of place.

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