Give Vodafone Idea the breather it needs

By: |
July 06, 2021 5:45 AM

Give Voda-Idea the moratorium it is asking for, and Trai must seriously examine a floor-tariff; else, telecom duopoly likely

That would be damaging for an increasing number of businesses and individuals that now depend on the internet for their survival.That would be damaging for an increasing number of businesses and individuals that now depend on the internet for their survival.

The government would do well to heed Vodafone Idea’s plea for another year of moratorium before it pays the instalment for spectrum charges. To be sure, the forbearance could be extended to all players in the industry, but it is important the government takes a lenient view not just for Voda-Idea’s sake but also in the interests of the entire telecom space, which is on its way to becoming a duopoly. Indeed, as experts have opined, all the gains from competition—state-of-the-art technologies and low tariffs, for instance—could be lost, even if partially, leaving India’s telecom infrastructure less robust. That would be damaging for an increasing number of businesses and individuals that now depend on the internet for their survival.

Vodafone Inc today has little to show for the billions of dollars that it has invested in India over the past two decades. While it seemed like the threat of the Voda-Idea joint venture closing down had receded, the results for the March quarter of the last fiscal—in which it reported a loss of a staggering Rs 7,023 crore—have revived that possibility. Even if the government does give Voda-Idea a breather, the telco will find it extremely difficult to maintain, let alone upgrade, the quality of its network and compete its peers. For that to happen, it needs to earn more revenues, which, in turn, means it needs to be able to raise tariffs.

Indeed, there is a clear case for the telecom regulator to enforce a minimum tariff so that the sector remains healthy and the players solvent. Trai is understood to have dropped the proposal to put in place floor prices for data and voice tariffs late last year, in the belief the health of telecom operators had improved post the December 2019 tariff hikes and the relief from the Supreme Court which allowed them to pay their adjusted gross revenue (AGR) dues in instalments over a 10-year period. It now needs to revisit the proposal and ensure that the sector never sees predatory pricing.

These columns had observed—in March 2020—that not only did Trai not believe RJio’s pricing was predatory despite evidence to the contrary, its actions, including a penalty for call drops, hurt other telcos. Even though Trai later came up with a technical paper explaining why the call drops were not the fault of the telcos, it didn’t drop the recommendation for a penalty. Voda-Idea has, of course, sought regulatory intervention for a floor tariff, but so has Bharti Airtel. Bharti has pointed out that, given its rates are at a premium to those of Jio’s, it is not in a position to increase tariffs unless RJio does so.

If Voda-Idea shuts down, thousands of jobs will be lost; indeed, the telco has already had to lay off employees in large numbers. Moreover, a huge investment—probably the biggest FDI investment of all times—as also the contribution of the Aditya Birla Group would have been wasted. All investments—foreign and local—need to be treated with a lot more respect. Given the unfortunate experience of Vodafone Inc, as also a bunch of other foreign players, it is unlikely any global telecom major will risk investing in India.

Perhaps, the government is not too worried on this score, and is confident that even without Vodafone—and despite the trouble that BSNL and MTNL are in—it will nonetheless manage to collect the targeted revenues from the telecom sector. However, banks will be in serious trouble if Voda-Idea were to shut shop.

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