Government equity in Vodafone Idea a poor solution

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The government has stepped in to save another corporation before it is too late. This time the corporation in distress is Vodafone Idea (VI).

The company is not in the best of its time since their merger. By 2021 it was knee-deep in liabilities of ₹2 lakh crores.

On January 12, they opted to convert interest liability on its dues to government into equity form for the government.

This was one of the options given in the reform package the government announced, with the other being an additional four years to pay their dues.

After the Supreme Court ruled on the AGR matter relating to computation of levies due to the government, additional financial burden of nearly ₹1.3 lakh crores befell over the telecom industry. VI was the hardest hit among them.

This package will relieve them of that burden. Now the government will own 35.8% of its share making it the largest shareholder in the company. Despite many mistakes committed by the company, its survival is good news.

Before and after the merger, both the companies were significant competitors in India’s telecom market who presented nationwide quality services. It was part of one of the fiercest competitive markets in India.

If the VI have exited, it would have created a dual power struggle between Jio and Airtel. This would also put BSNL and MTNL in a precarious position. Even though they are saved by government intervention, it is a step backwards.

The government now holds authority over two telecom companies in the market, (MTNL is a subsidiary of BSNL), which could cause a clash of interest and upending of the market.

According to experts, there should be a clear separation between entities of policymaking, regulation and service provision. That is why TRAI is an independent body and BSNL is a corporation instead of being a DoT service provider.

Even though the government has declared that they will not see VI as a PSU and will divest soon, it raises other concerns. It ranges from where the interest of the government lies when it comes to decision making and do, they prefer VI more than BSNL/MTNL.

In this case, a sustainable solution is needed. One such solution is a strategic partnership between BSNL, MTNL, and Vodafone Idea. Through such a union, the government companies can use the infrastructure of the VI to upgrade their network.

This process is difficult, but if done it will be beneficial for the companies and can maintain the competition in the market.

All of this is result of years of telecom licensing regime and the formula for computing operator levies that pressurized the industry. Fearing total damage, the government has revised these rules, satisfying the experts and others in the industry.

This greedy mining of telecom revenues has led to many debilitating disputes in the past, and more reforms are needed in the industry.

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