3 min read.Updated: 04 Aug 2021, 06:34 AM ISTLivemint
Birla’s stake in Vodafone Idea held out on a platter to the Centre offers us a hint of how VI could be saved. It would be a trip-wired path, though, and unlikely to raise market rivalry
The survival of Vodafone Idea (VI) as a business has been in doubt ever since it was lumped in late 2019 by a judicial order with a hefty charge that its management had argued—not unjustifiably—it did not owe the government. Its recent request for a year’s forbearance on nearly ₹8,300 crore due as spectrum fee next April to the Centre gave VI’s caving-in a ring of inevitability. That it would struggle to pay its court-upheld dues—now estimated at over ₹50,000 crore—even in instalments over 10 years was obvious. That millions of its customers and employees could be left in the lurch is now clear from an extraordinary proposal made by VI’s Chairman Kumar Mangalam Birla. In a letter that made news on Monday and was written this June to cabinet secretary Rajiv Gauba, Birla offered to transfer the group’s entire stake of 27% in the debt-laden telecom firm to the government (or an entity of its choice). “I am more than willing to hand over my stake in the company," he wrote, to keep VI going. Without the Centre’s addressal of three issues—clarity on its adjusted gross revenue (AGR) liability, a spectrum-payment moratorium and a floor price regime above service cost—VI would head for “an irretrievable point of collapse", he said. New Delhi has not signalled a rethink on any of the three so far.
VI is short of options. Efforts to attract investors have made little headway. London-based Vodafone, which owns a 44% stake in it, has opted to invest no further in its Indian venture with Birla’s Idea. It was formed by a 2018 merger seen as a defence pact against the price aggression of Reliance Jio. While Airtel was able to just about withstand the pressure of Jio’s 2016 entry that crushed market tariffs, VI’s finances got so badly stretched that an apex-court ruling in favour of counting even non-telecom revenues as eligible for sharing with the Centre was simply too hard a blow. If VI shuts down, India’s market for telecom services will effectively turn into a Jio-Airtel duopoly, as the state-run operators BSNL and MTNL are also-rans. A crash in competitive intensity would be bad news at this juncture of our economic emergence, just as we need more rivalry to assure us a bright digital future. But saving VI is no easy task either.
A government takeover of VI could face some criticism for liabilities taken on, unless a revival plan is worked out. It could conceivably be rolled into BSNL and MTNL for a new three-way combine to be given operational freedom and then privatized after it achieves viability. But such a path would be full of trip-wires. Our two state-owned operators are also loss-ridden and their own merger has stumbled. Duopoly aversion would require an unwieldy patchwork of operations to shape up and act as a real competitor in a Jio-led market. The odds of this offering us a realistic way out of our telecom predicament look dismal. Not that VI going the insolvency way under our bankruptcy code holds out better prospects of securing adequate rivalry. If a formal default turns VI over to its lenders, they may possibly get to reclaim a sliver of their loans, but the Centre would probably get nothing at all, even as this very AGR baggage deters bidders for the company as a going concern. In the eventuality that it must be liquidated, and if its assets end up under an auction hammer, they may not find much buyer interest beyond existing operators. That would take us back to square one. It’s a quandary of a truly rare sort.