Indian telecom industry actually skipped one-generation of tech-innovation by jumping ‘pagers’ as a product. The industry was supply-led until mid-1990s, with years of waiting for a ‘landline phone connection’ and telecom connectivity seen as a luxury service.
With the advent of mobile telephony and the subsequent drop in unit-pricing, telecom became a volume industry and a basic-human-need product. This industry’s privatisation, which started with much fanfare, and with over 50 licences across India, has seen consumer demand grow, with businesses being decimated as well. In this regard, even the public sector enterprise BSNL is no different.
First support BSNL
In October 2019, the government had given a ₹70,000-crore revival package to BSNL. BSNL has purportedly asked for additional funding support of ₹37,000 crore over 3-4 years, to build its 4G rollout plan as well as to adjust its AGR dues of nearly ₹5,000 crore.
There is another entity, Bharat Broadband Network (BBNL), that government could merge with BSNL. This could fast track the BharatNet project to connect six lakh villages with high-speed internet. Crucially, this would give over ₹60,000 crore cash of the Universal Service Obligation Fund (USOF) in its kitty.
The government took a pragmatic call few months ago, to secure its own debt exposure to these telcos in the form of spectrum liabilities. It allowed telcos to defer their repayment of spectrum liabilities by converting into equity — the NPV of the interest that will accrue on the deferred payments.
The alternative to this would have been GoI foregoing a large amount of monies, especially at a time when it’s own fiscal space is constrained. This is not a new model; it applies to lenders like banks, who convert debt to equity; have a say on the board of such an entity to protect its interest as a shareholder, and enforce a plan to exit the stake at a profit within a short time. Hence, this very exercise is not a bailout as punters claim. It is a practical business call of a lender (government) to safeguard its debt going bad
Vi, as the erstwhile Vodafone-Idea brand is now known, had been attempting to raise funds or bring strategic investor. It has over 25 crore subscribers and decent cash flows. With it deciding to convert its debt-to-equity, the government will become a 35.8 per cent stake lead-investor in the entity. The current promoter shareholders would hold around 28.5 per cent (Vodafone Group) and around 17.8 per cent (Aditya Birla Group), respectively.
This would allow the government to have have a say in appointments pertaining to board committees, directorships of the entity.
With the government being the lead investor, they should have a say in setting the vision for the firm — a Merge-Manage-Monetise plan.
The shareholders should allow the management team to execute such a plan and to enhancing corporate governance standards. Lessons from (mis)management of few state-owned enterprises like AI still rankle the markets. The markets worry if the government will intervene with the operational handling of Vi; this is a genuine concern that needs prompt addressing by the government.
Telecom players need disruptive technology upgrades and network capability expansion — both of which need capex . Can the government afford to keep investing individually in BSNL, BBNL and Vi? Fiscal reality points the other way.
Let the government merge these three entities into a unified telco. Allow it to be a listed private-sector company, with the government playing an investor role through board governance. This would make it two fewer entities for the government to manage and worry about. It would make for meaningful competition in the telecom sector with no more worries about duopoly.
The writer is a Corporate Advisor & independent markets commentator