Birla Surrender On Vodafone Is Indictment Of Government's Telecom Policy: We Need Root-And-Branch Reform

When a multi-billionaire offers a letter of abject surrender to the government, offering his entire shareholding in order to rescue his company from failing, it is not about the company any more. It is an indictment of a seriously flawed telecom policy. The policy needs root-and-branch reform.

In a letter written to the government on 7 June, but which came to light only two days ago, Kumar Mangalam Birla, head of the Aditya Birla Group and owner of a 27.66 per cent state in Vodafone Idea Ltd (Vodafone plc owns another 44 per cent), said: “It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity — public sector/government/domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern….I and my team will be more than happy to work with the government to urgently explore all possible options and solutions to save the company and strengthen it in the national interest without any consideration of our private interest.” (Italics mine)

One can read this as an offer to hand over his shareholding, currently worth around Rs 5,600 crore, for free, but even if offered at the current market price, the government should grab it with both hands. Not merely to help the company, but to rescue the sector from its own failed policies. Vodafone’s global CEO, Nick Read, has already ruled out any further equity infusions into the company, and that leaves only the government with the resources to save the company.

There are three reasons why any short-term government takeover is not just about saving the company or its promoters.

First, as Birla himself pointed out, it is about bailing out 270 million customers, and preventing the rise of a duopoly which can only be bad for all customers over the long run.

Second, of the Rs 1.8 lakh crore of outstanding liabilities of Vodafone Idea, Rs 60,000-and-odd crore are owed to government purely on account of the Supreme Court verdict in the adjusted gross revenues (AGR) case, which the telcos lost in 2019. There is no way it is going to recover this money, or even a portion of it, by letting Vodafone go under.

Third, if Vodafone goes under, many banks will be in deep trouble, for Vodafone assets account for nearly 1.5 per cent of the sector’s total outstanding credit. If these assets deteriorate and have to be provided for, guess who will pick up the bill for public sector companies? No prizes for the answer. And if banks won’t lend further for telecom, who will buy the government’s high-priced spectrum, especially when spectrum is not collateral that banks can resell to recover dues?

The right royal mess in telecom is largely the government’s own doing, and can be traced back to two big events: the United Progressive Alliance’s 2G scam, and the National Democratic Alliance’s (NDA) own decision to politically profit from it and later extract maximum revenues from spectrum sales.

If the government thinks it can charge eye-gouging prices for leased spectrum in order to maximise revenues, there is no way the sector will remain competitive and affordable. The markets will ensure that spectrum’s monopoly seller faces a duopsony, Jio and Airtel. Sooner or later, spectrum prices have to be crashed to make the telecom sector viable enough to be able to plough back resources to improve networks and services.

Government policies went wrong somewhere between 2008 and 2010, the first year being the one in which Andimuthu Raja of the Dravida Munnetra Kazhagam tweaked the first-come-first-served policy of telecom licensing and spectrum allotment to benefit likely cronies. The spectrum was sold at prices discovered in 2001, and remained unadjusted for inflation and demand.

By 2010-11, the then Comptroller and Auditor General, Vinod Rai, made several estimates of revenue loss, among which the highest was Rs 1.76 lakh crore, based on prices paid for 3G spectrum in 2010. Nobody asked why 3G spectrum bids were so high, and so the answer went unnoticed. Prices went through the roof only due to an artificial shortage of spectrum created by the government.

The media did the rest of the damage. Since media tends to highlight the most outrageous of claims — consider how often deaths due to Covid are now routinely headlined to be in the millions rather than lakhs — the Rs 1.76 lakh crore “loss” became the new headline. Both media and opposition politicians made hay with that number. After that, justifying that loss figure became central to both the NDA and the media in general.

This implied that after 2010, the Telecom Regulatory Authority of India and the Department of Telecom got wedded to the idea of keeping spectrum reserve prices too high to make commercial sense, and the industry — just to stay in business — paid those prices till it could no longer do so. Consider the illustrious names that have dropped out of Indian telecom so far: Tatas, one Ambani, Malaysia’s Maxis, Russia’s Sistema, Norway’s Telenor, AT&T, Japan’s DoCoMo, Hongkong’s Hutchison, the Dhoots of Videocon, the Ruias, RPG Group, Max Group — to name just a few. That some of them made a huge profit by selling early does not take away from the reality that they decided that getting out was better than staying in for the long haul.

Telecom can only be saved from duopoly if spectrum charges are rationalised drastically and government stops viewing it as a golden goose from which any amount of eggs can be extracted quickly. We know how that fable ended — in a tragedy for the goose and for its rapacious owner.

Telecom needs a fundamental mindset change from rent-seeking behaviour to growth-enabling policies that enhance future revenues from widespread adoption of telecom services down to the last man. The social and financial gains that emerge from this boost in overall economic productivity will ultimately accrue as revenues to government in some form or the other.

One hopes Prime Minister Narendra Modi and his Finance Minister understand that the golden goose is good for lots of golden eggs, provided it avoids avarice. Greed, even if displayed on behalf of the public, is not good.