The telecom sector beyond Jio and Airtel
Following the Supreme Court’s judgment on the matter of adjusted gross revenues of telecom operators, the government had in late 2021 announced a relief package for the beleaguered telecom sector. The terms of the package allowed for the conversion of the interest on telecom firms’ deferred AGR and spectrum dues into government equity in telecom operators. Vodafone Idea had taken this option in early 2022. Now, about a year later, the Union government has approved the plan to convert interest dues of more than Rs 16,000 crore into equity. Following this transaction, the promoters ’ holding will fall from 74.99 per cent to around 50 per cent. The government will now hold around 33 per cent in the company, making it the single largest shareholder in Vi.
By itself , this move will not translate into a complete turnaround in the fortunes of the telco . Vi has been steadily losing subscribers . As per data from TRAI, from June to September 2022 alone, the telco has lost around 7.5 million subscribers. And not only is its average revenue per user much lower than that of both Jio or Airtel, Vi also has a lower share of high-paying 4G subscribers and has fallen behind in capital investments . The company has a sizeable debt-burden . Moreover , there is uncertainty over the rollout of its 5G services. In comparison, Gopal Vittal, Managing Director of Bharti Airtel, said on Tuesday that the telco’s 5G rollout was on track to cover all towns and key rural areas by March 2024. In a market that is populated by behemoths such as Jio and Airtel, who are in a stronger financial position as compared to Vi, for the-latter to remain competitive, it will be critical to raise money. It is possible that investors were waiting for the government to first exercise its option before committing further funds. On its part, the government should have exercised the option of converting its dues to equity earlier, and put-an end to the uncertainty surrounding the telco. The Union minister of communications, Ashwini Vaishnaw, is now reported to have said that the government has received assurances from Vi’s promoters that they would infuse additional capital in the company — though to what extent either of the promoters will infuse the much-needed funds in the current economic environment remains-to be seen.
An inability to raise the required resources to compete effectively against Jio and Airtel will risk transforming the sector into a duopoly . This will have adverse implications for consumer welfare. India’s digital ecosystem will benefit from greater competition. Government policy should be guided by the objective to ensure robust competitiveness in the sector.