The announcement of Kumar Mangalam Birla stepping down from the beleaguered Vodafone Idea has created a buzz. His resignation has been approved by the VI board and soon he will be replaced by Telecom industry veteran Himanshu Kapania.
The reason behind his resignation from the post can be the critically ill financial position and the imminent collapse of the company. He resigned after writing to cabinet secretary Rajiv Gauba the day before, proposing to sell Aditya Birla Group’s stake in the company to any government-approved organisation. He said, in a letter written on June 7, “I want to emphasise that without immediate and active support from the government on these issues….VIL’s financial situation will drive its operations into an irretrievable point of collapse.”
On one hand, Birla is making an exit, on the other side, the UK-based Vodafone Plc has raised its hands on infusing more equity into the company. But, now the question arises, what holds for VI now? Will the government help VI bailing out? or VI end up like Aircel and Anil Ambani’s Reliance?
How Much VI owes To the Government?
The country’s third-largest telecom operator has only Rs 1.86 lakh crore in debt [including interest accrued but not due and adjusted gross revenue (AGR) liability]. It is on the verge of bankruptcy as the owners Birla with 27%, and Vodafone with 44% are no longer willing to pump in more equity. They seem to have given up on this company grappling with debt clearance.
The company had to bear a loss of Rs 44,233 crore in FY21, and it has now a negative net worth of Rs 38,228 crore.
In addition, non-convertible debentures (NCDs) worth Rs 7,500 crore are due for repayment from September 2021 to February 2022, with just one instalment (Rs 1,500 crore) due in September 2023.
Birla acknowledged defeat in the DoT’s court after the Supreme Court refused to hear telcos’ arguments for recomputing dues.
But, in this whole courtroom drama, the government will have to bear the brunt more than Vodafone and Idea. How?
VIL has a total debt of Rs 1.8 lakh crore out of which it owes Rs 96,270 crore to the government in deferred spectrum obligations and Rs 60,960 crore in AGR obligations, accounting for 86 per cent of the company’s total liabilities.
However, this accounts for just 0.43 per cent of the company’s entire loan book. Accruing Rs 4,000 crore to Yes Bank of the book, Rs 3,240 crore to IDFC First and Rs 3,500 crore to IndusInd Bank.
With this collapsing business of VI, the telecom sector will be left with only two major private players- JIO and Airtel. On one hand, JIO has larger penetration, offering several plans to its customers including that of wifi services. On the other hand, Airtel had diversified its business offering payment banks services, wifi and regular Talktime services.
As per the monthly report published by TRAI, Bharti Airtel lost 46.13 lakh wireless subscribers while Reliance Jio added 35.54 lakh, mobile users, to its customer base. The third-largest telecom operator Vodafone Idea’s saw 42.8 lakh outgoing users in May.
With losing customer base and financially on a ventilator, the company can only look for its rescue to the government. But, will the government help or it will also result same as Aircel and Reliance. It still remains unanswered.
Will Vodafone Idea Exit Be Really Good For Customers?
Sometimes participating also matters in a competition. Suppose, you have participated in a 50 metres race. And, when you reach the ground, you see, you have only one competitor present. The race will be in between two of you now. And, you will have to strive to win the race, otherwise, you lose!
Similarly, it is important that VI stays in the race, even as a muted player, but it should, despite no matter how low service penetration goes. The role of VI still remains relevant. The more the number of players in the market, the more service options, with better quality, the customers will get and that too, at competitive prices. The exit of VI can fuels a bottleneck competition between 2 left options; leaving customers in a world of so called monopoly where it would become difficult to switch or toggle with the telecom companies. The exit of VI boost confidence of the two-big telecos, and will allow them to introduce any kind of plan they want, leaving customers with nothing special but only with the choice to comply with the available offers.
Luring offers could be a possibility post VI exits from the market. Since its exit gives the opportunity to rival competition companies to divert the VI user base in their favour. But, the loss will be of the customers only, having fewer options in their hands to switch and prevail services of.