Question

In one typed page, discuss an instance (from real life) of a government (the US government or a foreign one) taking action to promote competition / break-up monopolies. Explain the government’s motivation in this.

Please provide reference if available

Answer 1

Recently the Indian Government has sought intervention in Telecommunications market where an Oligopolistic market structure exists of 3 players namely Bharti Airtel, Vodafone Idea Limited, Reliance Jio and the government has sought to reduce levies and penalties and spectrum payments periods are elongated and most importantly suggested rate hike in tarriff plans to revive sector.

Since all cimpanies were slapped cumulatively by 1, 05,200 Crores of penalties on Adjusted gross revenues since 2012 rhe entire sector is on verge of bankruptcy leaving only one firm Reliance Jio with highest capex spends amd customer base who is ready to payback the penalty which means other two players will be forced to wind up and become insolvent. This situation naturally leads to monopoly and thus government has intervened.

Background of Telecommunications sector

Telecommunications industry in India faces an Oligopolistic market structure with combined revenue potential of 30 billion Us dollars and taxation rate at 33 % with 4 large players of equal sizes namely BSNL, Vodafone Idea limited, Bharti Airtel, Reliance Jio. The industry has grown at stagnant rate from 3% to 4% however has been largest contributor to GDP at 11% and contributes 11,00,000 jobs yearly in India. However key challenges remain industrial prices set by Jio as rock bottom, heavy taxation and cumbersome merger acquisition regulations amd strong consumer pressure on low prices.

Industrial output has grown from 22billion dollars ro 30 billion dollars a sper GSMArena, TRAI data, DoT data. FDI in Telecommunications has increased however hummongously by 57%but the consumer demand for data and calls has grown enormously by 322% and so has the prices fallen to 5 Rupees per 1 GB data as compared to 250 rupees for 1 GB data in 2014. The Government has too allowed foreign investment and global players tobid for spectrum auction and hence net FDI is higher and dollar inflow and suprlus too is high.

The biggest drivers of growth pattern are changibg consumption preferences to higher usage plans, lower prices which drive higher affordability, 4G coverage and infrastructure sharing. The Demonetization in 2016 in India saw huge losses to telecoms sector and similarly the 2008 Recession also impactes financial health of 10 players existing erstwhile which led to substandard growth in Telecommunications sector in 2019.