Visionary former Prime Minister (PM) of India Atal Bihari Vajpayee realized that the telecommunications sector was being stifled, not by its inherent financial dynamics, but by his own government – through a deadly combination of frequent political changes, bureaucratic repression, a rent seeking approach and regressive taxation. Statesman that he was, Vajpayee made the bet of the implementation of the new telecom policy in 1999, in spite of an uncertain and very volatile political environment and, with his courage of conviction, reversed the gloom and the pessimism of the sector.
Today, the situation in India is similar. It has been compounded by rigid judicial pronouncements, a deliberate misinterpretation of political intent since 2008, and the persistence of inappropriate political arrogance in the determination to fundamentally correct matters.
The structural reforms of the telecommunications sector announced by Narendra Modi’s government aim to address most of these problems through thoughtful policy. The policy is brilliant in its push and balances its immediate imperative to avoid an impending Vodafone Idea (VI) bankruptcy with fiscal prudence, while displaying astute management of the policy perspective coupled with a company-specific bailout intelligently. camouflaged with public funds.
The reform package effectively provides what VI (and its potential financial investors) has always wanted: political certainty, medium-term cash flow accommodation, and financial support through a government guarantee to be seen as a ” continuity of exploitation “. The policy achieves all of these parameters, without being company-specific or destroying public finance value – a brilliant move.
I do not share the pessimism of analysts who characterize this policy as a “weak ring” for VI, based on its transmutation into a public enterprise in four years, or no adjustment currently planned on its balance sheet and its profit and loss account. Nothing could be further from the realm of possibilities now open to VI.
Bharti and VI both have the scale, distribution, talent, and infrastructure assets to fully exploit the immense opportunities that 5G adoption offers at the intersection of the Internet of Things (IoT). , artificial intelligence and cloud technologies. They didn’t have access to global capital, which Reliance artfully raised last year. The key transformation initiative that VI must now undertake is to reorient its business model from providing simple connectivity solutions to the emergence of a ‘platform game’ for business services – in various industries such as manufacturing, retail, healthcare – to retail and corporate customers integrated into its network.
To achieve this, VI must connect to an ecosystem led by global tech giants who, among themselves (Amazon, Microsoft, Google, Facebook), are waging this ecosystem battle for cloud dominance in one more market. of a billion people connected. by cell phone, especially after being deprived of this opportunity in China.
Google’s Loon project with Telkom Kenya – to provide connectivity to remote and inaccessible places through its aerial wireless networks propelled by high-altitude balloons – is one example of the potential opportunities for VI.
Such an ecosystem will also need rich entertainment content, a payment platform and access to retail consumers. Fortunately, the current environment has distressed high-quality assets such as Zee, Future retail and similar players whose survival in the emerging digital world will be determined by their links to participatory ecosystems rather than stand-alone entities.
While making his defining comment in 2019, Kumar Mangalam Birla’s exact words were that “in the absence of relief from the government, it makes no sense to put money after the evil”. The government relief will now give VI four years to design and implement a credible plan to improve its financial parameters through a host of potential measures for strategic transformation.
For once, he has a strong ally in a statesman like Sunil Mittal, who has publicly supported the cause of higher tariffs in the telecommunications sector. Reliance will reluctantly agree as the government has made it clear its position on the dangers of a duopoly. All VI needs is an injection of sufficient capital to provide a financial drain comparable to Reliance and Bharti to reorganize, execute and prosper.
If KM Birla and Vodafone Group Plc demonstrate the in-game skin for this new model of atmanirbharta, and make appropriate investments (even as a signaling mechanism), a large injection of capital from global strategic investors – who are seeking a long-term foothold in the under-exploited and commercially important Indian market of over $ 1 billion. – will follow. In today’s environment of ultra-low interest rates and a global hunt for yields, the embedded 30-year policy intention stated is akin to investing in 30-year US Treasury bonds – with a return on capital. employee (ROCE) much higher.
The government has astutely provided a set of policies that are based on the principles of a “price-supplement structure” in entering into agreements, where the benefits to the target company depend on its satisfactory post-agreement milestones. In the case of VI, it has four years to achieve this: rethink its economic model and return to profitability by relying on multiple levers. Otherwise, its transition to a public company is obvious. But, given such an incentive structure, this is highly unlikely.
The sector is no longer confronted with unfavorable regulations or the baggage of the past in terms of retrospective taxation. Under the leadership of an excellent telecommunications minister, a new start beckons to make telecommunications, media and technology once again the posters of a modern and self-sufficient India imagined by Rajiv Gandhi and Satyan Sam Pitroda in 1984 , by Vajpayee in 1999, and now by Modi.
VI is a strategic asset and he must seize this opportunity.
Prabal Basu Roy is Sloan Fellow of London Business School, Director and Advisor to Board Chairs. The author was previously the group’s chief financial officer in various companies
Opinions expressed are personal
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