Vodafone idea future in India

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Vodafone

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Future of idea Vodafone


Telecom business demands huge investments like buying spectrums, licence fees and that is why it is not an easy business to do. Due to high investments, there are only three significant players left in the market and one is struggling. Vodafone idea Group CEO Nick Read in a July 23 analyst call, said that Vi is navigating through a difficult time.

Due to the high investments involved, telecom companies have rarely been prompt with their payments. In fact, they owe a lot of money to the government.

Back in 2019, the communications ministry had informed parliament that telecom operators had collectively owed nearly 1.47 lakh crores. However, considering the likes of Vodafone idea and Airtel were barely scraping through, the government offered them a moratorium which is sort of an extension.

They didn’t have to pay up for another 2 years if they only promised to fulfil their obligation with interest once the moratorium concluded. During that time, both of the companies agreed as there were no such challenges.

Now, their next payments are due in March 2022 and as per a report from ICICI Securities, Vodafone Idea will have to commit 16,000 crores when that day comes.

Apart from that, they have AGR dues also to pay which is a very high amount. Although each year, telecom operators have to pay some amount of their total dues.

A few years back, telecom operators were asked to pay a fixed fee to get their hands on a telecom license. However, this sum was so large that not everyone could afford it.

Hence, the government decided to adopt a different model and they began taking a small cut from the revenues. This strategy worked well for quite some time.

Soon after, a dispute arose. There was some kind of miscommunication.

Telecom operators believed that the government’s cut should include a percentage of the revenues from the telecom business and nothing else. The government, on the other hand, wanted a cut from everything including interest income, profits from selling old buildings, other miscellaneous income etc.

Since this matter couldn’t be resolved internally, this issue went to court. Unfortunately for the telecom operators, the courts didn’t buy their argument. Instead, they were asked to pay these old dues, which the news media commonly refers to as AGR dues.

Although Airtel and Jio don’t have much issue paying these dues. However, the total liability of Vodafone is close to 50,000 crores.

This entire amount has to be paid in instalments over a period of 10 years and a new instalment will be due in 2022. They will be required to pay around 8,400 crores which will create a massive dent in their balance sheet seeing the current challenges they are facing.

They are losing subscribers to Airtel and Reliance Jio and things don’t seem optimistic for them. Furthermore, 4G/5G infrastructure requires huge investment which they are desperately trying to invest. They have to battle it out simultaneously in a market where tariffs are still some of the lowest in the world and their cash flows are dying.

In the past few months, they’ve been trying to convince TRAI (the telecom regulator) to impose a floor price, hoping to set a minimum tariff rate that will help all the incumbents make some extra money.

They’ve also been asking the government to extend the moratorium on spectrum dues. In fact, Airtel has also requested the same to prevent Vodafone from going bankrupt. It seems that the government is actively considering this.

Recently, Kumar Mangalam Birla, executive chairman of Vodafone Idea, has even offered to sell his stake to the government or any entity it seems fit. Naturally, this would mean that the state is bailing them out. He has even stepped down as the executive chairman.

However, considering the government’s tryst with BSNL and MTNL haven’t exactly been a rousing success, not everybody is convinced this is the right thing to do. Also, the government is focusing more on divestments.

To sum up, Vodafone Idea has too much debt and the owners don’t want to infuse new money anymore. They have massive payments due and they are losing subscribers in this very competitive market.

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