The telecom mess

The mess in India's telecommunications sector has been highlighted by the report that Tata Teleservices has announced a Rs 275 billion loss in 2017-18. This loss was partly thanks to a write-down following the transfer of its wireless business to Bharti Airtel. Even so, this sets a new record for corporate India. The second-highest such loss was also in telecommunications and also in 2017-18 — Reliance Communications lost Rs 239 billion in the financial year that ended in March.

These two results underline the troubled state of the sector. Of course, the companies themselves should take part of the blame; the Tata group, for example, had exited a venture called Batata (Birla-AT&T and Tata), in which it had 48 per cent in the 1990s as it was enamoured of CDMA technology. Batata went on to become Idea Cellular, India’s third-biggest operator by revenue, while CDMA-based Tata Teleservices remained a laggard ever since inception.

Many other players have exited the sector, leading to significant job losses. Vodafone and Idea have sought to merge businesses. Another, Bharti Airtel, continues to be weighed down by group debt. Only the disruptive new entrant, Reliance Jio, has a healthy financial position, thanks to funds being pumped in from the cash-rich group.

While there has been a consumer-friendly race to make data cheaper as a consequence, it is very clear that a combination of past mistakes and current lopsided competition has distorted the market and hampers growth-focused investment.

It is important to remember that the communications sector has often in the past served to super-charge Indian growth both directly and indirectly. If India is to once again come close to double-digit growth, it is one of the sectors that will be central to the effort. However, overall policy in the sector has neither helped its growth nor been consistently in favour of consumers. Inconsistency and arbitrariness, at every level, have been the hallmark of state action in this arena. When the courts cancelled large numbers of telecommunications licences because of questions about how they were handed out, many companies that had bought into the sector in good faith were penalised.

As a consequence, few pools of capital will now want to enter a sector with obvious sovereign risk. This makes it even easier for a cash-rich entrant to seek dominance. There have also been some questionable regulatory decisions that incumbents felt helped the newcomers. Their concerns cannot continually be ignored. Like it or not, the firms that exist will also need to make investments if India is to have a healthy telecommunications sector.

The government’s view of the sector has become focused on its ability to provide non-tax revenue rather than seeing it as an engine of growth or provider of essential services. This is absolutely the wrong lens with which to think about telecommunications, and has led to the current impasse.

The focus must be on answering the following question: How can a competitive market structure be supported in the sector? How can companies be incentivised to continually improve service quality so that consumers benefit? And how can administrative discretion — and thus opportunities for corrupt dealings — be minimised? Once the state's approach to the telecommunications sector is reframed along these lines, and the current shake-up in the sector ends, it is possible that once again telecom will propel Indian growth forward, and provide ever-improving services to Indians.

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