Impressions of favouritism

Vodafone CEO raises questions of a level playing field

Speaking in Barcelona, Nick Read, chief executive officer (CEO) of Anglo-Dutch telecommunications giant Vodafone on Monday, attacked the regulatory environment for the stress in the sector in India, and said it was designed to favour a particular player. Mr Read said the company had only asked for a level playing field in terms of regulation, but “over the last two years, we had many regulatory outcomes that were against everyone in the market except Jio”. His perspective is, of course, informed by being the head of one of Reliance Jio’s primary rivals. But as the stated opinion of the head of one of the parent companies of a major player in an important sector, it is nevertheless worth taking seriously. The impression that regulation is systematically favouring one player over others is something that no government, ministry, or sectoral regulator should allow to build up.
 

The special conditions of the telecom market make this criticism of favouritism particularly potent. The telecom market features network externalities — the more there are people on a network, the more it can dominate the market. This means that natural monopolies could build up. Arguably, much of market behaviour in the recent past can be interpreted as an attempt to position companies as the natural beneficiaries of this tendency towards monopoly. Thus, one focus of regulation must surely be ensuring that incumbents and challengers both stay in the game. From the regulator’s point of view, if it does not consider the dynamic perspective, Jio’s entry into the market has helped consumers, and so should be welcomed. In addition, the purpose of regulation is typically to assist new entrants in a market exhibiting a tendency towards natural monopoly — and not the incumbents. Thus, what Mr Read sees as a systematic bias towards the challenger could be explained away by this combination of incentives. However, neither principle applies in a simplistic manner in this case. The preservation of competition is also important, and it is in this that the regulator is perhaps at fault.

Mr Read also pointed out that average revenue per user in the Indian market was very low, and would have to rise. The regulator should perhaps note that such a rise is inevitable. The question is if this increase in tariffs will come after all the other players have been forced out of the market other than Jio, or before. The latter course is surely preferable, because it would ensure that a rise is controlled and not monopolistic in nature. The question then becomes how to ensure that this inevitable increase in tariffs is induced to happen in a clear and systematic manner, in such a way that competition is preserved. This is what the focus of the telecom regulator and department should now be. If the sector’s regulators and other authorities wish to recover their reputation and to avoid further such accusations of favouritism, they should make their intent to preserve competition clear, and seek consultation on how to restore the sector to profitability through a rationalisation of tariffs.