Vodafone Idea is heading towards bankruptcy. In such a situation, the biggest question is whether the government will save this company? Assuming it decides to save the company, will it be possible to save Vodafone Idea, which is under debt of Rs 1.8 lakh crore, with a relief package? After all, it is incurring losses of thousands of crores every month and premium customers are also leaving the company.
If Vodafone Idea sinks then the biggest loss will be to the government. When Anil Ambani’s companies Reliance Communications and Aircel sank, the government was able to recover very little dues from them. Vodafone Idea owes the government about Rs 96 thousand crore of spectrum. After the decision of the Supreme Court, the liability on the account of AGR has increased to Rs 61 thousand crore. Government banks also have to recover about 23 thousand crores from him. If the interest of the outstanding amount is also added to this, then the government can suffer a huge loss of up to Rs 2 lakh crore due to the sinking of the company.
In such a situation, if the Center brings a new package to save the company, then it will be the third such relief for the telecom industry after 2017. Vodafone Idea’s business and financial condition deteriorated after Mukesh Ambani entered the telecom sector in September 2016 and started a pricing war. Ambani’s company made voice calls free and data very cheap. This caused a lot of damage to Bharti Airtel, Vodafone India and Idea Cellular then. Vodafone India and Idea merged in 2018 after increasing business pressure.
Jio’s aggressive stance shook even Bharti Airtel at first, but the company managed to get out of the difficult phase. But Aditya Birla Group and Vodafone Group could not do such a feat and Vodafone Idea slipped, got left behind. The company’s poor business strategy is responsible for this, but the telecom department also made mistakes. The department should have curbed the trend of providing services at below cost when the set-up companies are on an increasingly slippery path.
When Vodafone and Idea merged, it was the largest telecom company in the country with 400 million subscribers. Even today it is the third largest telecom company with 268 million subscribers. If it files for bankruptcy, then there will be a rush among customers to shift to Jio or Airtel or BSNL-MTNL. This will greatly increase the pressure on the spectrum of these companies and the quality of telecom services will deteriorate. On the other hand, the exit of a large company from the market will give the companies an opportunity to raise rates again. At present, an average customer in the country spends 14 GB data. In this sense, today India is included in the front row countries of the world. This is the reason why the digital revolution has started in the country. If the data is expensive then it will have a bad effect.
There are three possibilities for the telecom sector- First, Vodafone Idea and Airtel have repeatedly demanded ‘floor price’ i.e. minimum rates for voice and data tariffs, but Jio does not agree to it. Despite this, if the government fixes the minimum rates, then it will increase the cost of the customers. Second, merger of BSNL and MTNL. If both the government companies are merged, it will put pressure on the exchequer because even after the recent package of 70 thousand crores, these companies are away from profit. Third, the possibility of a new company entering the country’s telecom market.
Well, it won’t be easy. If a company enters this market, then it will have to invest heavily, while here the revenue per customer is the lowest. Spectrum is also very expensive and the government has to pay heavy taxes. When the policy will change in the telecom sector, it cannot be guessed. The companies which are already in this sector, it will not be easy for the new company to compete with them.
Disclaimer: The views expressed above are those of the author.