The government is correct in its insistence that cellular telephony remain a four-player market with state-run BSNL. Increased concentration would become difficult to reverse if Vodafone Idea keeps losing subscriber market share. Competitive intensity has kept India’s telecom tariffs among the lowest in the world even as the government priced spectrum above other countries. Market concentration among players provisioning the nation’s digital backbone will remain a concern for the government as long as it seeks high upfront fees for radio frequency. Lower fees by themselves would improve competition in the industry but that is not a path policymakers want in their wisdom to embark upon.
Lifelines like those extended to Vodafone Idea, and turnaround plans like those for BSNL, however, effectively lower the spectrum fee realisation. These also require greater intervention by the state, thereby affecting market efficiency. Further, higher upfront fees delay technology adoption and dampen tax revenue. Finally, it adds to moral hazard for the government to get out of business. Vodafone Idea finds itself in its current situation in part by following shifting policy contours. Clarity over the right price of spectrum will help it, and the industry.
