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Indian Telecom: Not Too Big To Fail?

For a while now, I’ve been wondering if Indian Telecom is or isn’t “too big to fail”. The phrase “too big to fail” term that was used during the banks bail out – because of the cascading impact of money in the banking system, and the way financial institutions are connected, a bail out was necessary in order to prevent the collapse of the entire economy. Now while the same isn’t applicable in case of Telecom in India, the fact remains that the telecom industry has for long been the poster child of Indian business, and responsible for attracting international investment into the country.

Take a look at some of global, government-linked related investors in the Indian telecom sector:

– Batelco in S Tel. The Government of Bahrain is a shareholder in Batelco
– Etisalat in Swan Telecom (Etisalat DB). The UAE government is a key shareholder in Etisalat
– NTT Docomo in Tata Teleservices. The Japanese government is a key shareholder in NTT.
– Singtel in Airtel. Temasek, the investment arm of the Singapore government owns a significant stake in Singtel.
– Sistema in Sistema Shyam Teleservices. The Russian government has picked up a significant stake in SSTL
– Telenor in Unitech Wireless (Uninor). The Norwegian government is a shareholder in Telenor

Apart from this, Vodafone has placed a big bet on its acquisition of what is now Vodafone-Essar. Loop, Videocon, Idea Cellular and RCOM haven’t sold equity to foreign investors, but there’s big money riding on each telecom business.

There are investigations in progress, and lots of allegations and source based information in the press, about many telecom companies, admittedly, not about all in the list above. Someone argued that only a small part of the total revenue of the Indian telecom sector is embroiled in scam related allegations, and business continues to grow, month on month, quarter on quarter. But what happens if all the allegations around the 2G scam are proven to be true, and – as has been mentioned in the press – licenses of some of those who got them in 2008, are cancelled? For a minute, imagine not the impact on customers (hence third party rights), but on relationships between countries and more importantly, on foreign investment in Indian businesses, when due to policy issues and (alleged) corruption, one of the most important, and fastest growing business sectors in the country, things fall apart. It could have a cascading effect on foreign investment in the country, and spook investors looking at key infrastructure sectors, not just telecom.

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If it were let to just a government to decide, I would assume that there would be some sort of a compromise – a penalty to pay, or face-saving exits for businesses and/or governments through M&A, and business would continue.

But it’s now in courts, and courts make decisions based on law, not the state of the economy or potential repurcussions. I’m not saying that any of the allegations are true or false – I have no proof, the judicial process will run its course, and the guilty should be punished. I would guess that the face-saving exit routes were closed once this went to court.

But that thought continues to linger – can India afford it?

Written By

Founder @ MediaNama. TED Fellow. Asia21 Fellow @ Asia Society. Co-founder SaveTheInternet.in and Internet Freedom Foundation. Advisory board @ CyberBRICS

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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