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Government’s Entry in the Telecom Sector: a Curse or a Boon?

The Indian government has decided to enter the telecom sector in India. This sector witnessed the arrival of the government by becoming a stakeholder in telecom operator, Vodafone Idea. The main motive behind the government’s acquisition is its strategy to counter the formation of a duopoly in the sector by Indian tech giants, namely, Airtel and Jio.

It's noteworthy that Vodafone Idea was on the verge of collapse which could have created a vacuum for the tech giants to capitalize on. This event could have wreaked great havoc, however, the government swooped in to save the day. Though many might argue that the after-effects of the dissolution of Vodafone Idea may be odious but price strategy could have been altered. Others are apprehensive of the government’s arrival as the government is primarily targeted for its inefficient and redundant work that renders an organization disorganized and loss-making.

This idea of the market not taking the news of the government’s acquisition quite kindly can be corroborated with facts. Vodafone Idea’s shares saw a dip of 19% in early trade after the announcement of the aforementioned proposal. This clearly demonstrates the aversive and antagonistic attitude of the market towards such a takeover.

However, this gives rise to a pertinent question. Are the claims and fears of the market unwarranted? Well, some analysts think that it certainly is. This is due to the fact that such pessimism can easily be dissipated if the government does not actively participate in the internal managerial workings of Vodafone Idea.

In fact, analysts have furthered this argument that this takeover can prove quite beneficial as this provides an incentive and potential for both Vodafone Idea and BSNL MTNL’s subscriber base and the investors. The rationale behind the same is that if the aforementioned two entities (Vodafone and the BSNL) are merged, they could prove highly profitable, especially as India awaits the arrival of the 5G era in the country.

The potential of this merger

The merger of Vodafone and BSNL does not only offer a great subscriber base but also has the added benefit of BSNL’s pan India wired coverage. This can be effectively and strategically complemented with Vodafone Idea’s wireless coverage. This can give the merged entity the power to make the telecom sector a highly competitive one by sharing the synergies of both entities.

Despite the optimistic argument in favor of the merger and the acquisition, the fact remains that such a theory looks quite feasible on paper compared to the ground reality. This is especially true given the government’s performance in BSNL, which has rarely registered a profit. Other, apprehensions that have been raised by the public are that the government will be acting in two capacities i.e., that of a regulator and a market player.

Therefore, will such a union be sagacious and in the best interest of the industry? Given the whirling apprehensions and skepticism in the air, only time will tell what such a union will be available to achieve.

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