Don’t miss strategic ViAbility for equity

Fresh equity infusion by the government into Vodafone Idea (Vi) – by converting ₹36,950 cr of Vi’s spectrum dues into equity – has not only raised eyebrows but also several questions. GoI now is at the edge of majority control – nearly 49% from 33.1% – in the telecom company. Any further equity-for-dues swap would have to be carefully thought out, unless GoI is comfortable with raising the public sector’s role in India’s telecom market, not the best move for optics. The second tranche of equity support must come with tighter assurances of a turnaround from JV partners Vodafone and Idea, which are losing skin in the game but retain operational control. The latest relief is designed to tide over a short-term crisis. Yet, does the largest stakeholder in Vi (GoI) have visibility on a medium-term restructuring strategy? This will be critical for debt infusion into the entity. Bankers would want to know where GoI is going with Vi before they resume lending to the company.

Another set of questions pertains to effects of this development on the telecom market. GoI has not yet been able to script a turnaround story for BSNL. Adding to the market share of public-funded telecom may not be the answer to rising market concentration. The prospect of a 4-player telecom sector where Jio and Airtel are profitable, while BSNL and Vi struggle, isn’t encouraging. It doesn’t address the stated intent of competitive telecommunication services. GoI is also spreading resources over a bigger basket, thereby affecting BSNL’s reconstruction. The number of players in a market has to be set against relative strengths of the competitors. One more or less shouldn’t matter as inordinately if the playing field is evenly matched.

Both purposes – of Vi’s corporate restructuring and avoiding a telecom duopoly – would be better served by reassessing entry and exit barriers in the industry. Costly spectrum is a deterrent in either situation. It’s also slowing the growth of telecom infrastructure in India. A more reasonable spectrum pricing could hold the key.