Opinion

Vodafone, a friendIn need in GoI


GoI, having decided to convert Vodafone Idea’s accrued interest into equity, must now hold the company’s joint venture partners to account over promised capital infusion. As the single-largest shareholder in the telecom company, it will have greater say in how capital raised by the promoters will be deployed to arrest subscriber erosion and speed up 5G network rollout. Estimates suggest Vodafone Idea would need an equity infusion of the order of three times the debt-equity swap in order to up its game in 4G and 5G. The delayed government lifeline to Vodafone Idea could convince lenders to refinance some existing debt, but new loans are contingent upon fresh equity infusion. The clock is ticking as competitors Reliance Jio and Bharti Airtel attempt the quickest 5G network rollout in the world.

The government is correct in its insistence that cellular telephony remain a four-player market with state-run BSNL. Increased concentration would become difficult to reverse if Vodafone Idea keeps losing subscriber market share. Competitive intensity has kept India’s telecom tariffs among the lowest in the world even as the government priced spectrum above other countries. Market concentration among players provisioning the nation’s digital backbone will remain a concern for the government as long as it seeks high upfront fees for radio frequency. Lower fees by themselves would improve competition in the industry but that is not a path policymakers want in their wisdom to embark upon.

Lifelines like those extended to Vodafone Idea, and turnaround plans like those for BSNL, however, effectively lower the spectrum fee realisation. These also require greater intervention by the state, thereby affecting market efficiency. Further, higher upfront fees delay technology adoption and dampen tax revenue. Finally, it adds to moral hazard for the government to get out of business. Vodafone Idea finds itself in its current situation in part by following shifting policy contours. Clarity over the right price of spectrum will help it, and the industry.



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