Vodafone-Idea, India’s second-largest telecom company, may be headed for liquidation unless the government eases off on demands for mobile spectrum fees, Nick Read, the chief executive officer of Vodafone, said in London. The battered Indian telecom sector is bleeding heavily. Vodafone-Idea and Bharti Airtel, once among India’s most aspirational and profitable companies, reported record quarterly losses - cumulatively standing at £7.4 billion - as bruises from the brutal price war unleashed by Reliance Jio were aggravated by the Supreme Court’s recent Adjusted Gross Revenue (AGR) judgment, which slapped a fresh payment liability of nearly £5 billion on them.
Read said India, where Vodafone formed a joint venture with Aditya Birla group’s Idea Cellular in 2018, had been “a very challenging situation for a long time,” but Vodafone Idea still had 300 million customers or about 30% market share. “Financially, there’s been a heavy burden through unsupportive regulation, excessive taxes and on top of that we got the negative Supreme Court decision,” he said.
Vodafone-Idea, which has time and again sought tax cuts and deferment in payment of statutory dues, now has the dubious distinction of creating a record – at £5.09 billion loss. For Airtel, the loss is at £2.30 billion, the third-biggest quarterly loss for any Indian company (behind Tata Motors’ £2.69 billion loss in the quarter ended December 2018). The only silver lining for the two firms is that since their massive losses are due to frontloading of all possible liabilities, including that arising out of the SC’s judgment, they may come down significantly in case the government provides them relief by way of staggered payments or moratorium. It is also calling for the spectrum payments to be spread over 10 years. Asked if it made sense for Vodafone to remain in India without such a relief package, Read said: “It’s fair to say it’s a very critical situation.”
However, Vodafone India denied reports that Read had communicated to the Indian government that “either they should take their boots off the neck of the industry and allow it to better compete... or Vodafone Idea is destined for a potentially chaotic final act with potential repercussions for India’s international standing”. The arrival of new entrant Reliance Jio Infocomm in 2016 plunged the industry into a brutal price war. Read said Vodafone was not committing any more equity to India and the country effectively contributed zero value to the company’s share price. As a result of the ruling, it has written down the value of its stake in the joint venture to zero.
Govt hints aid for telecom cos
Finance minister Nirmala Sitharaman indicated that the government intends to address the concerns of telecom companies, which are facing acute financial distress and made it clear that it did not want any company to shut shop. “I want no company to shut operations. I want everyone to be up and running. We want the economy to have good number of companies in business and flourish in their business. Not just telecom sector, my wish is all companies in all sector(s) be able to do business, service their market customer and survive. So with that approach, the finance ministry has always been talking and in telecom too that’s the approach we have taken,” the minister said.