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JayAs Vodafone Idea Ltd was about to burrow under its $30 billion debt, India has threw a lifeline For the UK operator’s local joint venture. The rescue is just one of the tea leaves. Group CEO Nick Reed will read on as he weighs in on the all-important question: Will India hit India, Deutsche Bank AG analysts recently described “most painful market“To operate telecommunications? The answer will decide whether it’s time to play afresh for a market of 1.4 billion people.
According to Investec Capital, New Delhi’s moratorium on inflated back-fee claims, additional time to pay for spectrum purchased in previous auctions, and at least Rs 316 billion ($4.3 billion) in liquidity support for relief from bank guarantees ) increases. Services. This will keep Vodafone Idea running, though stabilizing a business that has lost more than a third of its 400 million-plus customers in three years will require a light debt load and a hefty equity cushion. In other words, a true revival will require an optimistic view of the future.
This can be difficult given the industry’s checkered past. With the regularity with which India spreads negative surprises on its wireless firms, it will be difficult for Reid – and its board – to believe that this time could be different.
Investors such as the Norwegian Telenor ASA, which came to India a short time later from Vodafone, were burned at the time of the country’s Supreme Court. 122 telecom licenses canceled Suspicions of irregularities in his award came in one fell swoop in 2012. This was also when New Delhi changed the law to hound the operator retrospectively, after losing a tax case against Vodafone. $3 billion demand. The messy feud went on until an international arbitration panel dismissed the government’s claim last year; This destroyed the chances of the firm going public in India.
Then five years ago, Mukesh Ambani, India’s richest man, upped the economics of business by hitting the fray with free voice calls and cheap data. An area of a dozen operators was effectively reduced to just three. To survive, Vodafone merged its network with Indian billionaire Kumar Mangalam Birla’s publicly traded Idea Cellular Limited, which was then. Country’s largest wireless service.
But it exploded again. Industry and government were at loggerheads over the definition of revenue, which was to be shared with New Delhi under India’s 1999 telecom policy. In 2019, the Supreme Court upheld the government’s very broad claim, which included all forms of non-telecom revenue. In the case of Vodafone Idea, the burden of past dues, which came to $7.8 billion, put it in danger of sinking. With neither of its two main equity partners wanting to throw more good money after bad, it looked like the banks would get a haircut and the government might have to nationalize the operator in order to turn the market into an Ambani-led monopoly. to be prevented.
Rescue has averted that fate. As part of the plan, New Delhi is set to take equity. But only in lieu of interest payment if Vodafone chooses to pay its dues later. There has been no reduction in the debt burden. In fact, the bailout could give a leg up to the No. 2 player Bharti Airtel Ltd. As Investec says, its investment in Indus Towers Ltd – the largest owner of mobile towers in India – could now dodge the hit that Vodafone Idea, a major tenant, would have run out of cash. In addition, Bharti will also be eligible for all concessions. Yes, if Vodafone went under it would have won a lot of customers in one go. But some of them will migrate to it anyway.
For Vodafone Idea’s 255 million customers who are still sticking around, it is not enough to know that better liquidity will allow their telco to survive. Can it invest enough to give them a good 4G service now and 5G service later? For the employees too, it will be important to have faith in the long term existence of the firm. This is where Reid enters the picture. The courts will not allow the government to revisit the past, but the bailout package promises a narrower definition of revenue to help determine the government’s stance in the future. Reid is also being told that 100% foreign ownership is fine, with no prior approval required. Will Vodafone, perhaps along with some deep-pocketed private equity firms, buy Birla’s shares and take control?
Resuming an Indian adventure is a daunting – but fascinating – prospect. With the increasing use of smartphones and rapid digitization, the demand for data is increasing rapidly. Moreover, India has finally sent retrospective taxation Where there was always the terrible idea: the trash can. These are all encouraging signs, and even Bharti Airtel chairman Sunil Mittal is convincing his rival Reid to grab the precious opportunity and “recover what has been lost.” For economics to improve, however, Ambani’s Jio Infocomm – the new leader – will have to wage a brutal price war. Operators are required to receive at least $3 each month from an average customer; Vodafone is not earning even half right now.
But in the future all is well. For now, global investors are afraid to watch the blue skies of Indian telecom lest the ground beneath their feet turn sandy. Read can change it.-bloomberg
Read also: GST Council imposes 5% tax on food delivery apps, extends concessional rates on Kovid medicines
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