There has been a strong buzz in the industry that Vodafone is on the verge of exiting the Indian market because of financial difficulties, according to media reports.
Vodafone is publicly denying the rumors. "Vodafone is aware of the unfounded and baseless rumors circulating in some of the Indian media that we have decided to exit the market," it said in a statement this week. "We would like to categorically state that this is not true and is malicious. Vodafone is actively engaging with government and we are fully supportive of our local management as they continue to manage our joint venture in these challenging times."
The rumors surfaced following a court ruling last week that demands penalty payments of about $14 billion from Indian operators, including $4 billion from Vodafone Idea and $3 billion from Bharti Airtel. India authorities say they are owed the money in licensing and other fees, calculated on the basis of total company revenues.
Vodafone Idea already has a massive debt of $14 billion and this payment, which it is supposed to make to the Indian government over a period of three months, could wipe out its entire cash balance of $2.9 billion. Further, the company continues to lose between 3 and 5 million subscribers every month, putting its survival at risk in the Indian market. (See India court decision a massive blow for telcos.)
An exit would have major implications for the Indian telecom industry. Vodafone, which merged with Idea Cellular about two years ago, is one of the biggest operators in the country.
It has, however, been facing one challenge after another. Its difficulties include a $2.2 billion tax case, which still consumes its attention today despite a court ruling in its favor back in 2012. The 2016 launch of Reliance Jio, an aggressive rival, has made it hard for Vodafone to defend its subscriber base in India, with RJio deciding to offer free voice calls for the first six months.
There were also reports that Vodafone Idea had approached its creditors about debt repayments. However, the company issued a statement earlier this week insisting that it continues to pay all its debts according to the original schedule and has not approached any lenders about changes. Vodafone called such media reports "factually incorrect."
Vodafone is unlikely to rush into an exit, says Deepak Kumar, the founder analyst at B&M Nxt. "First, Vodafone would certainly take steps to explore options such as the filing of a review application, if applicable," he says. "Moreover, Vodafone would also like to wait and see if the government works out ways to mitigate the financial impact of the Supreme Court's decision."
Bharti Airtel has asked for leniency from the government regarding the fee payments. But it remains to be seen if the government will come to the rescue of the distressed telcos.
— Gagandeep Kaur, contributing editor, special to Light Reading