Recently a Bloomberg opinion article by Andy Mukherjee proposed to nationalize private telecom player Vodafone-Idea in the wake of their financial struggle and a possible exit from India which will result into job and economic losses. Author says,
The world’s cheapest data costs have done wonders for India by helping spread the benefits of the internet beyond a tiny, urban, affluent class. But there’s a problem: Successive governments have hounded telecom operators with outlandish financial demands. Now things have gone too far. Vodafone Idea Ltd., one of the three private-sector competitors left standing in what used to be a field of a dozen players, is very close to crumbling under the weight of its $30 billion debt. That will effectively turn the wireless market in the nation of 1.4 billion people into a duopoly.
Maybe not immediately, but the gains to consumers could be reversed because of the lack of competition. (An international survey shows Indian data plans to still be highly affordable, though they’re no longer as inexpensive as the world-beating 9 cents per gigabyte last year.) The pace of digitization of the economy could slow. Avoiding this scenario calls for some creative thinking.
Nationalization should rank high among the few viable options worthy of consideration, even though the state getting into the driver’s seat of private enterprise has in the past created zombies on perpetual taxpayer support, such as Air India Ltd. (emphasize mine)
Is nationalization of private telecom company Vodafone-Idea the right solution of this problem? To give an answer to this question we first need to understand why so many telecom firms have exited India and why Vodafone-Idea is struggling too. Our author actually provides this answer in his article, but then as it happens with most mainstream experts, instead of giving the right solution he just says the government is here to rescue us.
In his own article, my emphasis above, the author talks about how successive Indian governments have harassed telecom operators in India and forced them to exit the Indian market. This lack of ease of doing business in India is then responsible for the exit of many telecom operators. Our author calls everyone for creative thinking to solve this problem of lack of competition, but then without any creative thinking (or thinking itself) he offers the very same government that destroyed this sector as its savior! If government harassment of the telecom sector is the root cause of the lack of competition in the Indian telecom market then how is government nationalizing that sector outright the right solution to this problem? How will nationalization of Vodafone-Idea result in more competition? How will nationalization result in efficient functioning of the telecom market? Governments the world over are known to be the most inefficient institutions. Even our author knows this perennial fact, that when the state gets into the driving seat it creates zombie corporations which become a burden on tax payers. The reason why the Indian telecom market was opened for private players by the past governments is the very inefficiency of the public telecom operators like the BSNL or MTNL! How is going back to the same system of public operators now going to give us a different result? This is quintessential insanity.
If competition is desirable then why not advocate removal of government interference from the telecom sector, and the economy? Why not demand the government stop harassing the telecom sector? Competition will develop naturally in the market once government stops interfering, and that competition will reduce tariff rates again and improve quality of services. Nationalization of the only remaining private player in no way can bring any kind of competition into the telecom market. Nationalization is antithetical to competition.
Nationalization should not rank high among viable options at all. It shouldn’t even be considered as an option. The only viable option is allowing market forces to work in the economy, and that means stopping government interventions into the economy and society. This is the only viable option. Anything less than this will not work, guaranteed.