The recent judgment rejecting the Indian telcos' appeal to rework the Adjusted Gross Revenue (AGR) dues has again put a question mark over Vodafone Idea's survival in India.

The service provider has been struggling because of massive debts for some time, and this is yet another blow.

The company had a debt of INR1800 billion ($24.19 billion) and a cash balance of just INR3500 million ($47 millionn) for the quarter ended March 2021. Vodafone has been trying to source investment but hasn't been successful.

Figure 1: Exit strategy: Could Vodafone Idea end up shutting up shop?
(Source: Arti Sandhu on Flickr CC 2.0)

It's been reported that chairman of Vodafone Idea, Kumar Mangalam Birla, has written to the government to say that Aditya Birla Group (ABG), the parent company of Vodafone Idea, is willing to give up its stake to any public or private firm to ensure the service provider continues to operate. ABG holds a 27.66% stake in the company while Vodafone holds a 44% stake.

Birla also asks the government to clarify its stance on whether it wants to have a three-player market.

The letter also seeks clarity on several issues including AGR liability and spectrum payments. He says lack of clarity is one reason the company is unable to attract investors. All this adds to the uncertainty surrounding Vodafone Idea's future.

In the wake of the recent happenings, here are some of the options available:

Decides to exit

In the case of Vodafone Idea bankruptcy, there will be massive turmoil in the Indian market. Vodafone and Idea have both been an intrinsic part of the Indian market for a long time.

"More than 250 million of Vodafone Idea's subscribers would need to be absorbed by other telcos, mostly Bharti Airtel and Reliance Jio. The question is whether their network has the capacity and spectrum to absorb such a high number of users. Even if they do, it is sure to impact the experience of the existing users," says Ashwinder Sethi, a principal at consulting and analyst firm Analysys Mason.

Vodafone Idea's exit would turn India into a duopoly, which is highly undesirable because it brings down competition and innovation in the market.

Not too long ago Reliance Communications was forced to wind up operations in India in the country's biggest ever bankruptcy. Vodafone Idea's exit, if it happens, would have a massive impact on India's position as an investment destination.

Presence only in a few circles

It is possible Vodafone Idea may restrict operations to a few areas to bring down expenditure instead of a pan-India presence in all 22 service areas. This way, it could continue in service areas where it is in a leading position.

The problem with this option is that it leads to a lot of uncertainty, which may spark an exodus of high-value subscribers.

Aircel adopted this strategy, but it seems to be just one step before final closure. India doesn't have a precedent of telcos successfully present in only a few circles, so it is unclear how this is likely to pan out.

State control or foreign investment

Recent reports say Deutsche Bank has suggested the state take control of Vodafone Idea and merge it with the government-owned Bharat Sanchar Nigam Limited (BSNL) to avoid bankruptcy.

However, it is unclear how something like this would work, considering there doesn't seem to be much synergy between Vodafone Idea and BSNL.

Vodafone Idea has an extensive network in the country. It has data centers and around 160,000km of fiber across the country on top of spectrum and network. The administration could also potentially invite a global player to take over Vodafone Idea's operations in the country.

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This is an unlikely option as various global telcos, such Telenor and Etisalat, have burned their fingers trying to explore the Indian market.

Moreover, Vodafone's experience itself is unlikely to inspire any confidence in a foreign player. This is especially significant considering that Vodafone has experience of working in developing markets.

The government can provide some kind of relief to ensure Vodafone Idea continues to operate. However, it is clear that the next few months are going to be extremely tough for the service provider.

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— Gagandeep Kaur, contributing editor, special to Light Reading