On paper, India has five mobile phone service providers, three private sector firms and two public sector firms. But for all practical purposes it’s only the private sector that has a future as the public sector market share has not only shrunk to 10%, there’s no meaningful investment forthcoming to compete in a market where technological upgradation is essential.
Now, there is a danger that we may end with a duopoly among service providers. KM Birla, one of the promoters of Vodafone Idea, has written to the government asking for help to stay afloat. There are two problems the company faces. It’s making losses — in FY 2020-21, the loss was Rs 46,293.7 crore.
Unless the promoters, KM Birla and Vodafone Group, bring in more money the company will not be able to survive. Last month, the chief executive of Vodafone Group Plc told investors that they will not invest further in their India operations through equity. Birla has indicated that he is unable to raise additional funding unless there are government guarantees to help the company, particularly in the form of a floor price for mobile services.
It’s best if the government does not get into a new form of administered price regime in mobile telephony. There are now two ways forward. India has had an insolvency and bankruptcy regime in place for five years. GoI must ensure that is the framework used by any firm that is unable to meet its financial obligations. The IBC regime is designed to explore all possible means to preserve value in an existing company by looking for ways to keep it running. Liquidation is meant to be the last resort.
To help the process, GoI also needs to lend a helping hand. The prevailing system hasn’t been enough to find alternate investors for Vodafone. India needs to avoid a situation where competitive pressures in the telecom market decrease for incumbents. Competition is the lifeblood of a market system. GoI needs to make policy changes that ensure competitive pressures in this market don’t dim.
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