Vodafone Idea will have to shut shop if no govt relief comes: K M Birla

Kumar Mangalam Birla
Leading industrialist Kumar Mangalam Birla on Friday said Vodafone Idea would shut down if there was no relief from the government, setting alarm bells ringing. “If we are not getting anything, then I think it is the end of story for Vodafone Idea,” the chairman of the company said at the HT Leadership Summit, while replying to a question on the future of the telecom joint venture.

Birla’s comment came within weeks of Vodafone global CEO Nick Read making a similar point. During a post-result media interaction in London last month, Read had said its Indian venture might be headed for liquidation unless the government offered a remedy to ease the financial stress, especially after the Supreme Court verdict on adjusted gross revenue (AGR).

“If you don’t get the remedies being suggested, the situation is critical,” Read had said. He had elaborated that if the company was not a going concern, “you’re moving into a liquidation scenario’’. However, UK-headquartered Vodafone had later told the government that Read was quoted out of context.

Replying specifically to a query on whether further investment will be made in Vodafone Idea, Birla said, “it does not make sense to put good money after bad….. We will shut shop.” He added that “the big elephant in the room is AGR.’’ 

The telco’s shares dipped 5.3 per cent on Friday to Rs 6.92 on the BSE.

The Supreme Court had in October upheld the government definition of AGR, which implied telcos have to pay an estimated Rs 1.4 trillion towards past licence fee dues along with interest and penalties. The order means Vodafone Idea has to pay Rs 53,038 crore in dues. 

The government realises that telecom is a very critical sector and that the whole digital India scheme rests on this, according to Birla. “They have publicly stated that they want three players from the private sector and one player from the public sector, so I think we can expect much more stimulus from the government…,” Birla said. 

Recently, the Union Cabinet had approved a two-year moratorium for spectrum payments. The offer worked out to around Rs 42,000 crore of immediate relief for the telcos, but the industry believes it’s not enough.

Vodafone Idea had reported a pre-tax loss of Rs 36,959 crore for the July to September quarter after it provided for payments related to AGR. The company took a total hit of Rs 30,774 crore (including AGR) for the quarter, resulting in a record loss of Rs 50,922 crore at the net level. The company provisioned for Rs 27,610 crore on account of licence fee and Rs 16,540 crore related to spectrum usage charges (SUC) up to September 30, 2019.

Vodafone Idea’s subscriber base slipped by another 9 million during the same quarter to 311.1 million with average revenue per user (ARPU) at Rs 107 a month compared to Rs 108 in the previous quarter. The tariff hikes introduced by all three private telecom operators in December has come as a relief to the sector even as analysts continue to be wary about Vodafone Idea's chances of recovery.