Case study: India's telecom market

India's telecom market is on the brink of becoming a duopoly with two of the four major operators struggling to stay afloat. While Bharat Sanchar Nigam Ltd (market share of 10 per cent in the wireless segment, including MTNL) is in such a dire situation that it cannot even pay salaries to its employees, Vodafone Idea (market share of about 25 percent but falling rapidly) is fast running out of cash, raising concerns about its survival. Affordable telecom services are crucial to ensure equitable access to data online educational resources, general information, health services, consumer goods, and other services. India's telecom market over the years has been intensely competitive, ensuring that consumers got good deals on tariffs.

Now, consumers have limited options with Reliance Jio and Airtel cornering two-thirds (a rising figure) of the telecom market. As a result, tariffs have increased by 15-20 percent over the last year. Debt-strapped Vodafone Idea has been losing over a million users every month on average as it had to shut down thousands of cell sites across the country. It is caught in a negative spiral: in the absence of a material rise in its operating cash flows, the operator does not have the ability to make sufficient network investments and retain consumers. The company has a debt of over 1 lakh crore and had declared losses of nearly 7,000 crores in the fourth quarter of 2020-21. The company has been trying for external funding for over a year without much success. Given the legal complications around selling of spectrum, existing promoters' unwillingness to pump in more equity, pending AGR dues, and the ongoing tax dispute with the Centre, it is unlikely that any investor would want to invest in the operator.

The Departments of Telecommunications (DOT) has proposed a four-year moratorium on adjusted gross revenue and spectrum payments apart from a reduction in spectrum usage charge among the measures to improve the health of the debt-laden sector and retain a three private player market. Other proposals also include a reduction bank guarantee. The government is also evaluating whether to take a small stake in financially struggling Vodafone Idea.

Questions:

(a) Comment and discuss the market structure of the telecommunication industry. What kind of changes do you see in the market structure?

(b) What measures have been taken by the government to improve the health of the sector? Do you think that the government should acquire a stake in Vodafone Idea?