Decoding the crisis in telecom
A bright spot in the economy is heading for dark times
Friday’s dramatic developments in court in the case involving dues by telecom companies (telcos) to the department of telecommunications are the latest legal twist in a sector which has evolved in fits and spurts, each caused by either by a radical change in policy regime, or legal intervention. This isn’t about who is right and who is wrong. It’s usually redundant to discuss right and wrong after the Supreme Court has ruled on a matter, but there are three far-reaching consequences of the judgment that insists that telcos pay the government around ₹1.47 lakh crore in past dues almost immediately.
One, it will probably result in India’s first major duopoly in a large industry that serves around a billion. One of the three significant telcos in India, Vodafone Idea, will find it difficult to raise the money it needs to pay and could well choose to “shut shop” as its chairman said sometime ago. Much of the growth in the telecom business has happened because of competition, and the sudden drying up of the same could help the surviving telcos in terms of pricing power (simply put, they can take up prices sharply), and hurt consumers who will have less (or almost no) choices. The telecom regulator and the anti-trust body have to be at their best to ensure this doesn’t happen.
Two, it reduces the incentive for the industry as a whole to innovate or to even worry about such things as 5G, the next generation of telecom technology. That may mean India gets left behind as the world moves on. If data is the new oil, then India definitely cannot afford to ignore 5G. For starters, there’s unlikely to be much interest in the auction of 5G spectrum.
Three, over the past two decades, thanks to the telecom boom, India’s teledensity has risen from single digit levels to almost 90%. This has been accompanied by economic opportunities, the creation of millions of jobs, and the emergence of mobile app-based companies across retail, education, travel, media, entertainment and just about anything else. A crisis such as the one the telecom industry faces could end up hurting every one of those industries. The government, especially the telecom ministry, has known about the case and its potential fallout for sometime. It should have worked proactively to address the situation — even working to convince the court that it was open to a payout across 15-20 years (the window for most spectrum auction payments in telecom). Instead, it chose to do nothing, preferring to watch from the sidelines as the case played out in court.