The government, as reported, is considering a 74,000 crore bailout plan for the bleeding state-owned telecom companies Bharat Sanchar Nigam Ltd (BSNL), which operates across India, and Mahanagar Telecom Nigam Ltd (MTNL), which runs telephone services in Mumbai and Delhi. The proposed bailout package includes a handsome exit package for employees, including a good golden handshake scheme. Also, the plan earmarks sums for the acquisition of airwave spectrum and capital allocation. In all, the government expects these companies to shape up rather than ship out. For observers keen on a sell-off of these state-owned utilities, this is a disappointment. The package money, they argue, would be better spent elsewhere even as these two are placed in private hands.

There is good reason to retain public ownership of the two, however. Unlike a market that has no entry barriers, telecom is a licensed category—for the simple reason that it depends critically on airwave spectrum, a scarce resource that needs allotment by the government. Anything scarce that is shared cannot be shared by too many. So the number of players needs to be limited. By virtue of this, however, such a market is also vulnerable to cartelization. Sure, several private operators are currently reeling under mounting losses, growing debt piles and heavy government levies. Also, low service charges and freebies suggest that competition in this market is remarkably fierce, if anything. But look ahead: Stiff rivalry amidst a sea of red ink could result in consolidation, if not a shake-out of weaker players, and this would set the stage for a winner-takes-all scenario. New operators could always be allowed in, yes. But such markets have a special need for a state-owned operator, one that’s answerable to Parliament, to which customers can turn. State presence alone could keep private dominance in check.