Welcome Mergers in the Telecom Space
After the initial pain, telcos will gain, too
Vodafone in India is merging with Idea Cellular. Bharti is acquiring Telenor’s loss-making operations in India. Reliance Infocomm has merged with Aircel and MTS and is in talks to bring Tata Teleservices into its embrace. Indian telecom is consolidating at a rapid pace, thanks to the disruptive entry of Reliance Industries’ Jio, which fancies itself as a digital empire in the making rather than as a telecom company, and is, thus, prepared to offer voice services for free and data services at an ultra-low rate to facilitate all kinds of digital commerce. Disruption is bad, at least in the short run, for the companies being jolted out of their traditional mould but probably good for the consumer and for the industry as well.
The consumer’s benefit is hardly obscure. Tariffs have fallen sharply: calls are free and data has become cheap, once you become a subscriber for a nominal fee, which is zero for Jio alone till March. But this would prove transient, if the service providers did not reorganise their business to make these low tariffs viable. The ongoing consolidation in the sector is part of that organisational restructuring. Larger subscriber bases, especially those in underserved areas, would allow margins to grow thinner, without the company turning sick. Shared resources of the merging companies would allow cost saving. Larger pools of spectrum will allow operators to finally optimise the network in a manner prohibited hitherto by the slivers of disparate spectrum they had to make do with. Larger distribution networks will come in handy when telcos fully operationalise their payment banks. Consolidation will create a leaner, more efficient industry.
The Competition Commission of India, rather than the telecom regulator Trai, should oversee competition in the industry. There is no contradiction between having a sectoral regulator and entities operating in the sector being regulated for a particular purpose by another regulator. For example, just because a company offers telecom services and, thus, comes under the regulatory remit of Trai, it will not cease to be regulated by markets regulator Sebi when it comes to a public issue.