Vodafone Idea continues to demand relief from India's government regarding its payment of exorbitant licensing fees, but even this might not be enough to save the company. (See Telcos Might Get Payment Breather in AGR Case in India.)
Last October, India's top court demanded that service providers pay around 920 billion Indian rupees (about $13.9 billion) in license fees, penalties and interest payments. The ruling came after lawyers sided with India's government, whose case is that non-telecom-related business activities must be included in so-called Adjusted Gross Revenue (AGR) payments under telecom licensing conditions. (See India court decision a massive blow for telcos.)
Vodafone Idea owes up to $4 billion and is asking the government for relief. But in the recent Supreme Court ruling, authorities dismissed the review petition filed by Bharti Airtel and Vodafone Idea. In the meantime, telcos including Vodafone Idea have increased their prices. Vodafone Idea has also indicated it will not invest more in its India operations and will be forced to close the business without any relief.
However, price rises coupled with the government's help (if any comes through) might not be enough to save Vodafone Idea. The government relief is likely to come in the form of a loan or deferred payment terms. A loan will only stress the company's financials, since it has been reporting losses since Vodafone India and Idea Cellular announced their merger in 2017. Vodafone Idea now has a total debt of $13.9 billion.
It also continues to lose subscribers. At the end of June 2019, the operator served 380 million subscribers, but the number had fallen to 336 million by the end of November, according to data released by the Telecom Regulatory Authority of India (TRAI). In the same period, Bharti Airtel's subscriber base grew by 2 million, to 327 million. Vodafone Idea's competitors are gaining at its expense.
The company will find it tough to compete with Bharti Airtel and Reliance Jio, both of which are financially better placed to offer services at competitive rates. Moreover, Vodafone Idea might not be able to participate in the upcoming 5G auction, which could leave it even further behind its peers.
Indeed, any network upgrade and modernization programs are likely to face delays, affecting Vodafone Idea's long-term competitiveness in India. The operator has already reduced its capital expenditure, and there are signs of problems. Reports suggest the integration of the separate Vodafone and Idea networks has been far from smooth. There have been several outages and frequent call drops.
In the circumstances, there is a strong likelihood that further consolidation might happen at Vodafone Idea's cost. Already, it has lost its crown as the country's biggest service provider by customer numbers to Reliance Jio. If Vodafone Idea declares bankruptcy, Bharti Airtel and Reliance Jio will be looking for opportunities to acquire its assets and customers.
Some believe Vodafone Idea can still refocus its service offerings and survive. "While tariffs have already seen some upward revision, and more of that may be expected, that may not be the reason why Vodafone should decide against an exit," says Deepak Kumar, a founder analyst at B&M Nxt. "Rather, it is the potential opportunity in digital services which should form the rationale."
"Vodafone Idea will need to gear up to approach the opportunity and leverage it to its benefit," he adds. "Some carefully considered strategic investments may also be required towards that end. Essentially, the telco will need to get reorganized and repositioned as a new-age digital service provider rather than being seen as a mobile broadband service provider."
— Gagandeep Kaur, contributing editor, special to Light Reading