A N A L Y S I S
January 13 2022: Industry pundits have been suggesting many scenarios, most of them gloomy, for the cash-strapped telecom sector in India. Vodafone and Idea Cellular, which came together in 2018 to form Vi, was the one in most dire straits, while its competitors, Bharti Airtel and Reliance-Jio have managed to survive and profess to thrive. The possibility that the domestic telecom business would be reduced to a duopoly was being actively discussed.
But Tuesday's double development seems not to have been anticipated by industry watchers – though it was there all the time as one of the options mooted by the regulators. Like great minds thinking alike, both Vi and Tata Teleservices, recently renamed Tata Tele Business Services (TTBS), took an option which allowed them to convert the interest on their Adjusted Gross Revenue (AGR) dues into equity. In laypersons terms, this means they are offering shares in their company in lieu of the money they owe government.
If government accepts – and there is no reason why they shouldn’t, as they proposed it in the first place – it would end up owning 35.8 percent of Vi and 9.5 percent of TTBS. In the case of Vi, government would effectively be the largest single shareholder, though the two big promoters, Vodafone and Aditya Birla Group would still have a larger – 46.3 percent – combined share.
So, any gloomy predictions that government now would be aiming for a hand on the steering wheel or at the least be breathing down the necks of the other big shareholders, are unlikely to become true. It won’t have the numbers -- and in case would be extremely foolish to try. Instead of coming out and saying so with an unambiguous statement, it has chosen the increasingly favoured route of letting anonymous spokespersons brief major financial media channels, that it has no intention of getting involved in the day to day running of these two unexpected acquisitions.
But let’s not ignore one reality: Government already owns two telecom entities: BSNL which has a pan-India presence and is still the largest fixed line operator and MTNL which services Mumbai and Delhi circles. In a separate effort at rationalization for better efficiency there have been indications that BSNL and MTNL might be merged. Indeed, carving out a telecom company by pulling just two metros out of the map was one of those bizarre decisions of an earlier era that never made sense.
Indian Express reported earlier on another likely merger: BSNL with Bharat Broadband Network Ltd (BBNL), popularly known as BharatNet, a public entity that was created in 2012, with the special task of connecting six lakh villages across the country with high-speed internet. For funds, BBNL harnessed the Universal Service Obligation Fund (USOF) of all telecom players to take connectivity to the rural hinterland. Since last year, BharatNet’s model has evolved into one of a Public Private partnership in at least 16 states, so it would in any case have outlived its usefulness in about a year.
That leaves the question: What is the government going to do and how is it going to explain its presence, willy nilly, in 5 separate entities: BSNL, MTNL, BBNL, Vi and TTBS? This very much flies in the face of its stated mantra of bringing good governance and support to critical businesses rather than running them. And telecom is as critical as they come, since the entire edifice of a digital economy rests on a bedrock of reliable, nationwide communication channels – voice as well as data.
So chances are fairly good, that government will look on its new role in the boardrooms of two private telecom players as an unavoidable -- and short term -- presence, a measure to bring some degree of stability and confidence to a critical infrastructural sector in an environment of global churn and uncertainty. Speculation about a possible jumbo sale of the BSNL-MTNL combo, with the Vi and Tata holdings as some sort of icing-on-th- cake are just that: speculation not quite rooted in reality.
In fact, even as it accepts the invitation of the two telecom players to acquire their equity, it must, if it is smart, start planning how soon to divest itself of this responsibility. Because a government stake, big or small, in a private enterprise like telecom would be an anomaly at any time, given the sort of nation we aspire to be.