No one wins a race to the bottom

India has among the world’s lowest prices for mobile services. But India is learning that there is a cost to winning the race to the bottom.

Last week, Reuters reported that India’s federal cabinet approved a relief package for its telecoms sector, including a four-year moratorium on spectrum fees.

India’s telecoms sector ran into trouble in late 2016 with the entry of billionaire Mukesh Ambani’s Reliance Jio, sparking a price war that has forced some rivals out of the market and turned profits into losses.

Despite relief going forward, Indian carriers have billions of dollars in outstanding adjusted gross revenue payments owed to the government. Vodafone Idea owes roughly $7 billion in telecoms dues, according to Reuters’ examination of regulatory filings. Bharti Airtel owes the government $3.5 billion.

Price wars have produced great deals for consumers in the short term but service providers have been left unable to invest. A recent story in India Today says “India ranks 122nd globally in terms of mobile network speeds” according to data from Ookla, the company behind Speedtest.net.

Two years ago, I looked at a similar situation in Israel when I wrote “Low prices, at a high cost”. Following aggressive government intervention, prices in Israel fell, but so did the quality of the networks. “The massive reductions to revenues caused major reductions in capital expenditures, network roll-out and expansion, market capitalizations of the participants and even the number of employees.” As I said at the time, “The short term consumer benefits from policies driving low mobile prices may lead to higher and broader economic costs in the long run.”

A colleague of mine likes to say that a healthy telecom sector is one that generates sustainable competition, competition that is not just competing on price but also fostering investment in digital infrastructure to provide consumers with increasing quality of services.

As we have discussed so often before, it is a matter of balance. Two weeks ago, I wrote “there is a difference between “affordable prices” and “rock-bottom prices”.” There is a need to be able to cover the costs associated with expanding coverage and investment in advanced technologies.

India is another example of what happens when regulators and policy makers ignore the delicate balance between the competing objectives for: universal access; investment in high quality telecommunications services; and, at affordable prices.

No one wins a race to the bottom.

1 thought on “No one wins a race to the bottom”

  1. This was a great post about the cautionary ‘race to the bottom’. One additional important consideration is that a healthy telecom sector is able to employ educated national and international workers, paying a good wage that helps fuel the local economies they exist in. Racing to the bottom weakens and erodes a large part of a country’s economic foundation.

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