Is Vodafone doomed to fail?

Once upon a time, Vodafone was India's strongest networks. Today, its network of losses is enormous. Is it the end of story for Vodafone?

Vi is neck-deep in the flood of troubles. The lenders are refusing to give fresh loans to the company. Its pile of debts has grown out of control, and it is fighting hard to stay afloat. 

But, how did it get here?

Aah. Its fate has been doomed ever since it entered India in 2007 by acquiring a 67% stake in Hutchison Essar. This very first transaction is being dragged to date, as the government of India is eyeing to pocket tax revenue of Rs. 20,000 crores! Vodafone has won the case in multiple tribunals, but the Government is refusing to let go of such hefty tax revenues. (The tax dispute deserves a piece of its own).

While this dispute continues in the backdrop, India’s telecom industry was hit by a tornado named Reliance Jio. The price wars had begun and Vodafone had to digest massive losses to remain in the game. 

Thus came the merger of Vodafone with Aditya Birla Group’s Idea Cellular. The new entity with its synergies was supposed to take Reliance Jio head-on. They were set to become the biggest telecom operator post-consolidation, with a market share of 36%.

Alas, it wasn’t going to be so easy.

No sooner had it put its new strategy in place than it was dealt with another blow in the name of AGR dues.

One sec. What’s this “AGR” dues?

AGR = Adjusted Gross Revenue.

You see, telecom companies buy the right to operate their telecom business from the government (spectrum).

Along with spectrum charges, the companies have to pay a percentage of revenue every year to the government. This is called the AGR charges.

The problem lies in how the government defines this. The government says, “All revenue” and not just telecom revenues will come under the definition of AGR.

You see how this is unfair, right?

And so, the telecom companies protested this act. 

But, to no avail. The Supreme Court, in October 2019, ruled in favour of the government, and all the telecom companies combined were required to pay Rs. 146,336.98 cr! Out of which, Vodafone Idea alone was supposed to pay Rs. 53,038.6 cr. That too within 3 months!

That was a tough blow and Kumar Mangalam Birla said,

“If we are not getting anything, then I think it is the end of the story for Vodafone Idea...It does not make sense to put good money after bad... We will shut shop.”

While they were battling this issue, Covid made matters worse for Vi. The cash-strapped company kept losing its subscriber base and slipped to the third position after Jio and Airtel. 

Now, the Supreme Court allowed telecom companies 10 years time to pay their AGR dues (in installments) to the government. But, is this relief also too little, too late for Vi?

This is what the company's results state:

In short- losses are huge, debts are huge, the company has defaulted on some of the conditions in its loan agreements, the lenders are asking for more security and higher interest. But the company is short on cash and is looking to raise funds. If that doesn’t happen, the company doubts its ability to continue its operations.

But, raising capital isn’t going to be a cakewalk. Especially when the tariff rates in India continue to hover on the lower side. 

The company is now looking to raise Rs. 7400 cr by selling its fixed-line broadband subsidiary, optic fiber unit, and three data centres.

Do you think Vodafone will survive this time around? Or will it finally give up?

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