Vodafone Idea in Big Financial Mess

Vodafone Idea Ltd, the one of three private carriers of the country is in big trouble, mostly financially. VIL and Airtel is hit by 16 year old dispute with DoT, the AGR calculation, as verdicted by highest court of the country by end of October, 2019. As per Supreme Court, operators have to pay Rs 92,641 crore dues (breakdown = Rs 23,189 crore as the disputed amount, Rs 41,650 crore of the levy of interest, Rs 10,923 crore as penalty and Rs 16,878 crore as interest on penalty. Just about three years ago, the total dues were just Rs 29,474 crore). 

Out of this 46% would be from non-existing operators like Reliance Communications, Tata Teleservices, Aircel and others. 



According to an internal estimate prepared by the DoT, total dues on the telecom service providers arising out of SC order are around Rs 133000 crore. As per DoT's estimate, liability of Bharti Airtel Group stands at Rs 62,187.73 crore, Vodafone Idea  at Rs 54,183.9 crore and BSNL and MTNL at Rs 10,675.18 crore. And Jio in all calculation need to pay nearly 15 crore only, as their existence is just 2015 - 2019. 

Vodafone stays at the bottom of the pit:

	Pending Payment as per AGR	Debt amount	Net loss in Q ended June ’19
Airtel	Rs 21,682 cr	Rs 1.06 L crore	Rs 2,392.2 cr
Vodafone Idea	Rs 28,308 cr	Rs 1.15 L Crore	Rs 4,873.9 cr

While Cellular Operators Association of India (COAI) is appealing for the incumbents, as they challenged the government's method of adjusted gross revenue (AGR) calculation to include profit on the sale of fixed assets, dividend, interest and miscellaneous income. After the SC verdict Director General Rajan Mathews told, ''This is a disastrous blow for the industry and may well be the last straw that breaks the camel's back, given the precarious financial position of operators," 

Jio is pushing Incumbents to their limits

As Jio came in, and telecom sector saw bankruptcy, merger and acquisition - it left with Jio, Airtel and VIL. Once the no. of operators per circle was 10-12, that is now only 3 + 1 (BSNL/MTNL). Vodafone merged with Idea Cellular. 

As Jio backed zero IUC regime to hurt incumbent's source of revenue, Mukesh Ambani owned company is also backing SC order of AGR payment as incumbents would dry up to pay AGR linked bills. They even called COAI as mouth of two companies (Airtel and VIL), as COAI wanted GoI to withdraw this bill. 

Jio already sent a letter to telecom minister Ravi Shankar Prasad, Cabinet Secretary, Niti Aayog CEO and secretaries in the ministries of finance, law and telecom stating government does not have any legal ground to grant relief to Bharti Airtel and Vodafone Idea on payment of statutory dues based on adjusted gross revenue (AGR).

Jio is already rejigging its business to save from AGR payment in future. They spun off digital services from telecom arm, as Jio Platforms Ltd. The strategy is simple, seperate non-core business arms from the core business i.e. Jio's mobile and fiber broadband services.

Vodafone's Expansion Strategy in India is BIG WRONG

Vodafone is mostly focused to deep pockets of metros, and in my personal experience they are shittest 4G company in India, their adoption of 4G was slow, and slower is their 4G expansion. 

Well Idea has a modest 4G expansion strategy with limited 4G spectrum on 1800MHz. Idea got 2.3GHz and 2.5GHz spectrum only in 2016. 

Many users say that after the merging, Vodafone itself shut down towers in low ARPU regions, and whole network of VIL has became drastically poor. Also the merger process took longer time, and during the merger the expansion of 4G coverage was slowed down in many regions. Users are porting out from VIL.

Even I left Vodafone and ported to Jio. In my experience Jio's LTE850 is a savior inside the old buildings and in many areas where LTE1800 and LTE2300 is partially usable. Vodafone's 4G policy is something like where users would pay them more, they will reach there with 4G. But with 4G their calculation is so wrong. They can learn with Jio's strategy. Jio made the network - and users jumped into it consuming nearly 8-12 GB per month. 

There was a market rumor that Vodafone may exit the Indian telecom. Well I believe Vodafone may leave but it can do it eventually in a manner of phase by phase. And the whole merged company will not go offline, as VIL is now also co-owned by Birla Group. Even if Vodafone leaves, Birlas will continue VIL running, may be under old Idea brand. 

Message from Vodafone HQ & Then Apology to GoI 

Recently Nick Read, CEO of Vodafone Plc, 45% owner of VIL has expressed his frustration and told that the company's Indian venture may be headed for liquidification, unless the government eases off on demands for mobile spectrum fees.

After Vodafone Plc CEO Nick's remarks to cease Indian operations, he sent an apology to government of India, as the company is committed to Indian venture. 

May in reciprocal, GoI has proposed cutting the license fees from the present rate of 8% of AGR down to 5% and as for the spectrum dues, the government is ready to give a two year moratorium period of to the telecom operator for paying up these dues. That might be done to show gratitude to Vodafone's invest in India, which is one of biggest Foreign Direct Investment (FDI). 

However analysts believe if GoI go for relieving telcos, it will hurt India's banks mostly, in turn the economy of the country may go numb for years.

What VIL needs to do now to keep afloat in Indian market? 


Airtel has now better coverage on 4G almost at par with Jio, their VoLTE coverage available at all 22 circles now. They are shutting down 3G services and refarming 2.1GHz for 4G. 

VIL needs to push 4G coverage, more fiber backhaul to the towers - all they need more investment. 

As 5G spectrum auction is coming soon, Vodafone really needs more and more money, and nobody knows where they will get it from. Only two things they can do now, fresh investment from overseas from parent Vodafone and Birla Group of companies which is not expected at current scenario. Last option remains as the company monetize from their passive infrastructure like towers and fiber. Already there is news that VIL may sell off their data centers to create cash. With sellling of their stake in Indus Towers they can also earn money, which also indicates the faster processing of merger of Indus and Bharti Infratel, and Airtel is waiting for it to generate fresh cash by selling off its share from the merged tower co. 

I expect VIL may skip 5G airwave auction if they want to continue operations in India. 5G eco system is still under development though market is being prepared for it. Or they will look into 5G pie for only metro circles - 5G in selected pockets to serve enterprise customers only.