March 1, 2020

Vodafone Idea Looking For Relief From Indian Government 

It has not been the most enthusiastic time for any of the telcos since the time Reliance Jio started its 4G operations. Two of the major companies which had to suffer losses during the period were Vodafone and Idea. The UK based telco arraigned for a merger with the Aditya Birla Group telecommunication company Idea. The move was made to bring the strengths of both the companies together to prevail and thrive in the market conditions. But that didn’t happen. Casino and Keno is also a big growth factor in India. If interested, you can read more about casinos here.

History of Vodafone India and Idea 

Vodafone India came into the Indian markets as the subsidiary from the UK based Vodafone Group Plc. The company had a very good market share once before the launch of Jio. The telco before the merger had a lot of associations with big brands and events such as the Indian Premier League (IPL), Big Boss (an Indian television reality show). But when things started going wayward for the company, it had to look towards Idea.

Talking about Idea, it is a company that is incorporated by the Aditya Birla Group as Birla Communications Limited initially. But then its name kept on changing over the years, and in the year 2002, the Birla Group finally decided to launch the Idea brand of telecommunications.

Within a very short period, the telco managed to reach the one million subscriber count. Within 10 years, with its impressive cellular and data services, the telco managed to cross a 100 million subscriber count. In 2015, it was recognized as the 6th largest mobile operating company in the Indian markets. Before it merged with Vodafone, the company was nearing its 200 million subscriber count. Even Idea’s business took a hit when Jio came to the market.

Recent Earning Release Puts The Telco In a Strange Spot 

According to a recent earnings release from the Vodafone Group Plc showed that the outlook towards the Vodafone Idea remains very reproving. It is said that the company is looking for some relief from the Indian government. But in a market condition such as this, it is very unlikely that they will get any considerable help from the government, which will help them get back on feet.

Last year in October, the Supreme Court of India called an unfavorable judgment on the adjusted gross revenue (AGR) against the telco. This is why the stance on the company still is critical. The only help that the Vodafone Idea is looking for is that the government should oversee that they prevailing rates of interest and payments should not go any higher and is sustainable for the company to clear out its dues as when they come. This will certainly help the telco in a big way if the government agrees. But if not, there can be some serious troubles for the future of the group.

Supreme Court Turning Against The Telecom Companies 

One more thing which happened after the hearing of 24 October 2019 was that the 14-year long battle of the telcos and DoT (Department of Telecommunications) ended. The battle was for India’s top wireless carriers to pay for more than 1 trillion Rupees. But even this was not something which the telcos were looking forward to. This even puts them in a more strained situation than before.

The battle was there in the first place because the telcos did not like the way the Department of Telecommunications (DoT) calculated the AGR. As of today, the spectrum and license charges are fixed at 3-5% and 8%, respectively. The stance of the Department of Telecommunications (DoT) on this was that the AGR was a sum of all revenues that came to them while the telcos insisted that it was just the revenue from telcos. But the Supreme Court ruled its decisions in the favor of the Government and asked the telcos to pay the remaining dues by 24th January 2020.

When the standings were calculated, it was estimated that Airtel owed Rs 35,586 crore to DoT, Tata Teleservices which sold its business of mobile services to Airtel recently owed Rs 14,000 crore, and for the Vodafone Idea, the outstanding amount was over Rs 50,000 crore which does not look good for the telco.

The Looming Threat of Discontinuing Operations 

Last year in December, the chairman of Aditya Birla Group, Mr. Kumar Mangalam Birla, stated that if the telco Vodafone Idea couldn’t receive any benefit from the government, regarding the adjusted gross revenue (AGR), the company might have to discontinue from its operations soon.

As of today, all the telcos Vodafone Idea, Tata Teleservices and Bharti Airtel have requested for more time to clear out their dues. The government has accepted it gracefully. The telcos have also filed a modification plea with the supreme court in January to see if a negotiation can be made regarding the revenue shares, penalty, and interest.

One reason given by the Bharti Airtel to seek extra time for the clearing of dues was to assess and calculate the dues themselves. Since there are 22 telecom circles under the group and the dues have to be calculated for a time more than 15 years in total, the calculation will be quite complex and will require a lot of time. While at the same time, there is no possible way Vodafone Idea can manage to pay all the dues.

The telco simply lacks the resources required in the first place. So if suitable payment terms and relief are not provided by the government, the company will have to shut down its operations. This will lead to one of the biggest immediate closures in the history of telcos. Vodafone Idea has been in India for a very long time, and them going out of business would mean that a lot of subscribers will have to change their services immediately.

The estimated subscriber count is 300 million users and not to forget the fact that a lot of people will be left unemployed as well. The supreme court is going to hear the modification pleas very soon, and the decision which comes out of it will be really important.

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