Vodafone and Idea, which last year merged into VI, is the third major telecom company in India is on the verge of bankruptcy and an uncertain future. Most people are still trying to work out what could be the possible fate. In this article, we are going to decipher the longer term of India’s third-largest network operator.
Vodafone Idea came into existence by the merger of two major telecom companies in India in 2018, UK-based Vodafone and Idea Cellular, a subsidiary of Aditya Birla Group (ABG). Vodafone Group holds approximately a 45 percent stake whereas Aditya Birla Group has just 27 percent of the stake. The two telecom companies announced a merger since Reliance Jio took over the complete market within the blink of an eye after being launched in 2016. Jio’s success was immediate because it focused more on building a loyal customer base by providing free services for an entire year. Even after the introductory offer was over, it lured customers by keeping the tariff prices low and eventually kept on gaining more subscribers. This resulted within the legacy competitors suffering large chunks of share to Jio, which made it a market leader and emerging victorious within the tariff war.
The Vodafone Idea merge had a complete of 430 million subscribers and also the largest number of active customers making it the most vital telecom company in India at the point, valued at $23 billion. Despite the many efforts of Vodafone Idea to extend profit, Jio’s pricing made all the efforts move in vain and shortly the downfall of the corporate commenced making it a tad difficult for the corporate to barely even survive. The COVID pandemic made matters even worse for the corporate.
The biggest obstacle within the path of the injured company was the matter revolving around the Adjusted Gross Income (AGR). Vodafone Idea must clear AGR dues of 1.5 lakh crores, with the most important burden falling on Vodafone (Rs. 58,000 crores) and Bharti Airtel (Rs. 43,000 crores). The touch on reduction of the dues has been dropped at court by the corporate. All their efforts were futile and that they got an extension to clear their debts. In 2019, the course rule entered in favour of the DoT and directed them to pay their pending debts within the stipulated period in the form of installments by 31st, March 2031. Vodafone Idea has paid Rs 7,854.37 crore of its total dues, but over 50,000 crore remains outstanding it is to pay its next installment in 2022.
On The Verge of Collapse
With no positive light on the way to clear the dues, the chairman of Aditya Birla Group, Kumar Mangalam Birla, offered to convey up his stake to the government. He wrote a letter to cabinet secretary Rajiv Gauba explaining the precarious condition and informing that the investors aren’t inquisitive about investing within the company anymore. All the pitiful situations made the 54-year-old businessman step down as the chairman of the telecom firm. The venture was executed in the very hope of sustainability but it had been soon made to its knees by Jio. The corporate lost over 50 million subscribers since January 2020 and nobody knows whether this venture will pave its way to the road of all installments cleared. Though Vodafone Idea has not defaulted on any dues, yet it is assumed taking in mind the current scenarios that it is doubtful if it will be ready to honor the repayments due in 2022.
What if Vodafone-Idea dies?
Arising amidst the state of chaos is the question what will happen if the company shuts its doors forever?
The shutting down of Vodafone Idea will be home to many problems. Whenever an organization shuts down, its employees suffer leading to an increment in the unemployment rate, collateral damage, increase in competition, and loss of subscribers. People can also expect an increment in the tariff rates as the cost of maintaining the telecom infrastructure will fall under the arms of only two companies instead of three thereby leading to a hike in the prices. It will overburden Airtel and Jio. In this case, the consequences are crystal clear, shutting down of India’s third-largest telecom company will jolt back India to the era of 1990 when Duopoly (a situation in which two suppliers dominate the market for a commodity or service) ruled over the market leaving behind Mukesh Ambani’s Jio and Bharti Airtel sharing the majority of the market with each other. To recap there were many players in the Indian Telecom Industry like Reliance Communications, Airtel, the Hutch (which was later acquired by Vodafone), Idea, Tata Docomo, Virgin Mobile, Aircel, and others but none were able to rule the market for a much longer period of time. Today the Indian telecom industry is merely divided amongst Reliance Jio, Airtel, and Vodafone Idea, along with government-run BSNL and MTNL.
What can be the revival in this case?
The future of Vodafone Idea haunts its subscribers, government and other organizations too. There is not a permanent escape to any problem but at least we can throw light on the possible ways to overcome it. It is absolutely clear that Vodafone Idea needs government support. The possible way Vodafone Idea can seek the government’s support can be redefining the floor price (a minimum price for voice and data services) which means that no other telecom company can provide tariff plans lower than that and indeed a clarity on Adjusted Gross Revenue (AGR). The other possible way can be a merger of government-run BSNL with Vodafone Idea as already BSNL is not standing anywhere near to them in its poor 4G data service and not up to the mark voice call. By taking these measures only Vodafone Idea will be able to manage its survival and operational cost.
A creative solution to roof Vodafone Idea’s existing struggle in the Indian telecom market is that Airtel and Jio step up ahead as the caretakers of the company providing a roof to its millions of subscribers and employees because in case the company dies then the burden of its existing 270 million will fall on the shoulders of Airtel and Jio. Nobody knows whether Airtel and Jio are even equipped to handle this massive flood of subscribers that is going to overwhelm them and amidst the introduction of 5G in India are they ready to handle such grave circumstances?
Well whatever happens it is sure that something has to be done to save the company cause if not then it is going to make a bad impact on the foreign investors willing to invest and injure the backbone of the Indian Telecom Industry.