Adani’s telecommunications plan is fraught with promise and peril

A strong third competitor in the market for an essential consumer service is not a bad proposition. A comfortable duopoly of two incumbents, with almost similar market shares, limits consumer choice, leaving them vulnerable on prices and service quality.

That is why the Adani Group’s plan to bid for the spectrum at the next auction should be welcomed, but with caution. Currently, Jio and Airtel have a stranglehold on the market, with Vodafone’s financial difficulties limiting its ability to compete with them on equal terms. A new entrant, particularly if it is well funded and has the skills to be a long-term participant, could provide the competitive balance the telecommunications market needs.

However, purchasing spectrum is the easiest part of building an efficient telecommunications service network, even though in terms of investment costs, it is the most important component. The Adani Group, which is fast becoming India’s most pervasive conglomerate – at a time when this model of multiple business interests under one roof is being abandoned by even its most ardent practitioners around the world – has denied that it looks at the business consumer. This assurance clearly did not cut the ice for analysts who expressed surprise at the logic of a company bidding for spectrum in the auction simply 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 path to an eventual full-service public network.

After years of a deadly and destructive battle, Indian telecoms have seen a modicum of stability over the past year, with operators raising prices to levels where average revenue per user is viable for them without drilling a hole in the customer’s pocket. If all the Adani plan accomplishes is to drive spectrum bids up to unreasonable levels, in turn forcing incumbents to take on more debt at a time when they are nearing profitability, it will be counterproductive. . The experience of 2016 tells us that no one wins in such a messy situation. Worse still, if, in the unlikely event, Airtel or Jio decides not to risk ending up with unsustainable leverage levels and stay out of the auction, it would be tantamount to denying the benefits of 5G technology to millions of Indian consumers.

Spectrum supply that is not part of a clear plan to build and operate a high-quality public network will simply end up disrupting the market without delivering long-term benefits to customers. In recent months, the world has been waking up to the dire consequences of new entrants, backed by private capital, storming an existing business with subsidized deals. Immediately after, they were able to expend existing players out of the market, but when they run out of steam and run out of steam, customers have no choice. The example of the ride-sharing business where Uber and Ola killed old taxi services in the first wave of disruption, only to find market dynamics couldn’t sustain their scorched-earth strategies for too long, is there for anyone looking for a taxi anytime lately.

The grand promise of disruption — whether through technology as in Ola’s case or through access to money, as with Elon Musk’s grotesque bid for Twitter — is often a pipe dream. Given the choice between a low priced package associated with uncertain service and higher prices associated with an assured service, most customers would choose the latter.

5G is a connectivity juggernaut thanks to its low latency and ubiquitous accessibility, as well as its monstrous speed that can move data up to 100 times 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 the rollout of 5G will come with huge challenges ranging from security risks to running costs. To overcome them and set up the new networks while maintaining the existing networks, the operators will have to invest massively and concentrate on their activity.

If after buying the spectrum, Adani buys an existing telecom company and thus becomes a serious competitor and a solid third option, it will be to the advantage of Indian telecoms. But the mid-term plan we are currently talking about does not seem to meet this objective.

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