Tagged: vodafone

How to stop massive losses by Indian mobile phone service companies and prevent NPA contagion to banks

Some good-old Socialism and free-market competition to the rescue

In 2016, I made this prediction: “Indian banks face tens of thousands of crores of losses whether the 1.5-lakh-crore Reliance Jio succeeds or not!” I should have mentioned lakhs of crores.

Now, it has all come true. Indian banks, mostly government-owned and saddled with NPAs ranging from defunct airlines to ‘ultra mega power projects’ to road PPAs to Chotta Modis (“Nirav”), had lent massive sums of money to mobile phone service companies. These operators had millions of customers but were operating on wafer-thin margins.

First, Anil Ambani-owned Reliance Communications became bankrupt. Now, Vodafone-Idea is about to default. Airtel has also borrowed huge sums of money and is no better.

Reliance Industries has said no to more borrowing. Reliance Jio has gone back on many of its promises. It wants to charge for the free things it promised earlier.

Banks, insurance companies and mutual funds are all in danger of contagion. Is there a way out?

Sure. Here is how:

  • All existing mobile phone plans should be cancelled by Department of Telecom (DoT) and TRAI. A common pricing should be set by TRAI. For example, a mobile-to-mobile phone call should cost a fixed one rupee on all networks. The government specifies its cut for the spectrum and the rest should be shared by the two networks. As all mobile phone service providers in a telecom circle have to charge the same rates, there will be no price wars. Customers will favour the networks that provide the best service and the least annoyance. Market forces will then determine who wins or loses but not everyone will be at risk of going bust.
  • There should be a flat yearly phone number rental charge for say Rs. 100, accruing to government and the network. Phone numbers with no usage (switched off with no presence on the network) should be frozen for a year and made available to new customers.
  • To ensure that these operators do not infect the banking system, a portion of revenue from each call should be allocated for debt repayment, just like how the DoT charges for spectrum.