· The Vodafone idea is currently in a
delicate situation, with one of its promoters, Kumar Mangalam Birla, willing to
give up his 27 percent stake to the government.
· However, its British parent
company, Vodafone Inc., has refused to invest another penny in the company.
· Then what will happen to the
company's 270 million subscribers, and primarily its creditors who have lent
the company 1.75 lakh crore, and the Indian telecom market.
The decline of the Vodfone idea continues to hound the
company, its subscribers, and, to some extent, the government.
1.86 lakh crore in debt [including interest accrued but not due and adjusted
gross revenue (AGR) liability], the country's third-largest telecommunications
company, Vodafone Idea, is on the verge of insolvency, with the owners – Birla
with 27 percent and Vodafone with 44 percent – unwilling to put more money in
stated in the letter that he is willing to surrender his entire stake to the
government in order to keep the company running with its 27 crore users. On the
other hand, Vodafone Plc, based in the United Kingdom, has stated that it will
no longer invest in the company.
In a July
23 investor conference call, Vodafone CEO Nick Read stated, “We as a group try
to provide them with as much practical support as we can, but I want to make it
very clear, we are not inducing any additional equity into India”. According
to Birla's letter, potential investors were unwilling to invest due to a lack
of clarity on AGR liability, an adequate moratorium on spectrum payments, and,
most crucially, a floor pricing regime above the cost of service.
Vodafone Idea has already lost more than half of its value.
So, what if the third-largest telecom player dies?
of Vodafone Idea going bankrupt would first result in the industry becoming a
duopoly, as it was in the 1990s.
recapitulate, the Indian telecom market went from a monopoly regulated by the
Department of Telecommunications to one with multiple companies, including
Reliance Communications, Airtel, the former Hutch (later purchased by
Vodafone), Idea , Virgin Mobile, Tata Docomo, and Aircel, among many others.
Reliance Jio, Airtel, and Vodafone Idea dominate the Indian telecom sector,
with government-run BSNL and MTNL, among others, playing a modest role.
Another effect could be a considerable increase in tariffs.
The cost of
sustaining the telecom industry will be spread among only two companies rather
than three, greatly increasing the company cost and, as a result, the tariffs.
Will it have an effect on the banks?
previously stated, the corporation owes a significant sum of money to its
creditors and banks. If its assets are insufficient to fulfill its debt, it
will be forced to write down its loans to the company. If Vodafone Idea fails,
the bankers and service providers will have to suffer a significant hit as
well, as compared to a scenario in which the telecom remains functioning and
manages to repay its debt.
is the most vulnerable because its exposure to Vodafone Idea is the greatest as
a percentage of the bank's loan portfolio.
Are Jio and Airtel prepared to absorb another 270 million
Idea now has over 270 million customers. Its insolvency could put a strain on
Airtel and Jio. They may lack the capacity to accommodate such a large consumer
base, which will undoubtedly raise tarrif rates in the country.
Vodafone Idea Must Be Saved!
In his SOS
plea to the government, Kumar Mangalam Birla stressed three issues that must be
resolved in order to save the struggling telecommunications company:
clarification on AGR dues, a moratorium on spectrum payments, and a floor
pricing regime above the cost of service.
· In the matter of AGR dues, the
Supreme Court's decision leaves the government with no options.
· The moratorium on spectrum payments
would necessitate a change in the parameters agreed to by the operators, and
supporting only one telecom would be difficult.
· The term "floor price"
refers to the lowest possible pricing for voice and data services, which
indicates that telecom providers will not be able to offer rates lower than the
floor price. The floor pricing regime will necessitate determining the cost of
service, which may range from one telecom to the next, making it difficult for
· In addition, due to the most
recent modification Cairn Energy and Vodafone Group, both of which owing the
government more than $3 billion, will gain considerably from the Finance
Ministry's retroactive taxation.
us to the final option: create an innovative solution that reduces risk for all
resolving Vodafone Idea's challenges involves more than just a good plan.