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Home / Opinion / Adani’s telecom plan is loaded with promise and peril

A third strong competitor in the market for an essential consumer service isn’t a bad proposition. A cozy duopoly of two incumbents, with near-similar market shares, limits the choice for consumers, leaving them vulnerable on pricing and service quality.

Which is why the Adani group’s plan to bid for spectrum in the coming auction is to be welcomed, though cautiously. Currently, Jio and Airtel have a stranglehold over the market with Vodafone’s financial struggles limiting its ability to compete on level terms with them. A new entrant, particularly one that is well-funded and has the skills to be a long-term participant, could provide the competitive equilibrium the telecom market needs.

However, buying spectrum is the easiest part of setting up an efficient telecom services network even though in terms of capital costs it is the biggest component. The Adani group, which is fast becoming India’s most widely spread conglomerate—at a time when that model of multiple business interests under the same roof is being abandoned even by its most ardent practitioners across the world—has denied that it is looking at the consumer business. That assurance clearly didn’t cut much ice with analysts who have expressed surprise at the logic of a company bidding for spectrum in the auction merely to set up a captive network when there is a clear provision to do so outside of the auction process. Most see it as a route to eventual full-services public network.

After years of a bruising and destructive battle, Indian telecom has seen a modicum of stability in the last one year with the operators hiking prices to levels where the average revenue per user is viable for them without drilling a hole in the customer’s pocket. If all that the Adani plan accomplishes is to push up the bids for the spectrum to unreasonable levels, in turn forcing incumbents to take on further debt at a time when they have just about hit profitability, it will be counterproductive. The experience of 2016 tells us that no one gains in such a messy situation. Worse still, if in the unlikely event Airtel or Jio decide not to risk getting saddled with unviable levels of leverage again and stay out of the auction, it would mean denying the benefits of 5G technology to millions of Indian consumers.

A bid for spectrum which isn’t part of a clear plan for setting up and running a high-quality public network will merely end up disrupting the market without providing any long-term benefits to customers. In recent months, the world is waking up to the disastrous consequences of new entrants, backed by private capital, storming an existing business with subsidized offerings. In the immediate aftermath, they have been able to spend existing players out of the market but when they run out of steam, and funds, customers are left without choices. The example of the ride-sharing business where Uber and Ola killed the old taxi services in the first flush of disruption, only to find the market dynamics couldn’t support their scorched-earth strategies for too long, is there for anyone who’s looked for a cab any time recently.

The grand promise of disruptions—whether through technology as in the case of Ola or through access to money, as with Elon Musk’s farcical bid for Twitter—is often a chimera. Given the choice between a bundle of low price coupled with uncertain service and higher prices that come with assured service, most customers would choose the latter.

5G is a connectivity juggernaut thanks to its low-latency and anywhere-accessibility, along with its monstrous speed that can move data up to 100x faster. Its best use for some time will be in areas like autonomous transport, virtual reality gaming and remote surgery, and its effective deployment could add billions to India’s GDP. But 5G rollout will come with enormous challenges ranging from security risks to running costs. To overcome these and set up the new networks while maintaining existing ones, operators will need to invest heavily and have a razor-sharp focus on the business.

If after the purchase of spectrum, Adani buys an existing telco and thereby becomes a serious rival and a third strong option, it will be to the benefit of Indian telecom. But the halfway plan currently being talked of doesn’t appear to address that goal.

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