Fall of Vodafone Idea Might Take Down the Entire Telecom Industry With It: Opinion

Vodafone Idea chairman has already remarked that the company might have to shut shop if no relief comes its way from the government or the SC

Highlights
  • Vodafone Idea has massive dues to pay to the banks and the Govt
  • The telecom company's exit might also cause instability in the industry
  • Vodafone Idea has a massive network across India

The situation of the telecom industry is very well known by the public in India. Since the data tariff war was spun by Reliance Jio, the telecom companies have been in deep financial trouble. The troubles have been increasing for telecom companies with the coming of Adjusted Gross Revenue (AGR) dues on their head. The Supreme Court on October 24 passed a verdict which put the telecom companies under the pressure of paying Rs 1.47 lakh crore. The biggest victim of this decision has been Vodafone Idea. On Vodafone Idea, rests a due of Rs 53,000 crore which the telecom operator needs to pay before January 23. However, there is no way yet which has come up for Vodafone Idea as to how it is going to pay the dues. This begs the question, what will happen if Vodafone Idea fails to pay its dues to the Department of Telecommunications (DoT). We already know the answer, as it has been told by the chairman of Vodafone Idea, Kumar Mangalam Birla. He said that Vodafone Idea would have to shut shop if no relief comes its way in the coming days.

vodafone-idea-entire-telecom-industry

SC Unlikely to Extend Help to Telecom Companies

Vodafone Idea has been searching for relief from various avenues. The telecom operator first sought relief from the government but has already exhausted that opportunity. The telco also filed a review petition on the decision of the Supreme Court to challenge the order of the apex court, but it is unlikely that the telco will get some relief from there too. This means that there is quite a high probability that Vodafone Idea might miss out on paying its dues which are comprised of Spectrum Usage Charged (SUC), license fees, interests, penalties and the interests on those penalties. But, although on the surface, the closure of Vodafone Idea might seem like a big corporate entity going down, it is not simply that. There is more to the story, and it is likely that Vodafone Idea might drag others down as it collapses under financial pressure.

Interests and Penalties Putting More Pressure on Telcos

The first thing to look at here is how much amount does Vodafone Idea owe to the government. Besides the AGR dues of Rs 53,000 crore, Vodafone Idea also owned One Time Spectrum Charges (OTSC) of Rs 5,700 crore to the government. This is in addition to the deferred payments of Rs 1.57 lakh crore which VIL has to pay for the spectrum it has bought before. Now, although the government might simply retrieve the spectrum in case the company shuts down, it would still be losing the AGR dues and the OTSC charges. This is in the scenario, where there has been no auction of airwaves for a long time. The telco also owes Rs 49,000 crore to other creditors like banks.

Many have also termed the demand of AGR dues to be absurd as well, because it asks for Rs 1.7 lakh crore in dues from entities which are making a revenue of Rs 35 crore only. Further, it is crucial to note that over 75% of the total AGR dues which the telecom companies have to pay are made up only of the interests, and penalties and the interest on these penalties. Hence, if the government or the SC was to relieve the telcos of this chunk of the dues, then the telcos would be much better off financially, and they are more likely to be able to pay their dues.

Vodafone Idea’s Failure to Cause Instability in the Sector

Another facet to look at here is the stability of the industry. The data tariff war that lasted from 2016 to 2018 has already consolidated the telecom industry from multiple industry players to just three. Now, if Vodafone Idea was to exit the industry, then the competition is likely to come down by many notches and is likely to result in higher prices for the consumers and a likely monopoly situation led by Reliance Jio. Also, almost one-third of the subscriber base will be distributed between two of the major telcos, Bharti Airtel and Reliance Jio. This might also mean that the two telecom operators might not mean as much competition for the airwaves and the government might have to sell the airwaves at a lower cost than previously expected.

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Arpit spends his day closely following the telecom and tech industry. A music connoisseur and a night owl, he also takes a deep interest in the Indian technology start-up scene and spends rest of his time spilling poetry and stories on paper.

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