India’s troubled telecom company Vodafone Idea is hoping the government will take measures to address the challenges plaguing the telecom sector.
Addressing shareholders in the company’s annual report, Chairman Himanshu Kapania said: “As the industry continues to remain under unsustainable financial duress, your company is hopeful that the government will provide the necessary support to address all structural issues faced by the sector.
“Your company with a history of providing 25 years of mobile services to the country is hopeful that the government will support its efforts to generate reasonable returns on their massive investments.”
He pointed out that during 2021, the challenges were further aggravated by the Covid-19 pandemic.
However, he gave assurances the company would continue to focus on improving the network. Vodafone Idea is driving incremental 4G investments in 16 priority circles and it has also initiated 5G trials with major network partners, he added.
Vodafone Idea’s operational performance has been impacted by intense competition, low tariffs and debt of 1.9 trillion rupees (US$25.88 billion), leaving it with hardly any surplus for network upgrades. The company has sought an additional one-year moratorium on spectrum dues and is pitching for a decision on floor prices for telecoms.
Kapania took over from Kumar Mangalam Birla on August 4. Before stepping down, Birla offered to give up his 27% stake to the government to keep the company afloat. The other joint venture partner, Vodafone Group Plc of the UK, owns a 44% stake. Both partners are against putting any fresh capital into the company.
Last September the company’s board announced a 250-billion rupee fundraising plan to meet its debt obligations. They had aimed to complete the fundraising by early 2021, but it failed to attract investors.
The collapse of Vodafone Idea would have a major impact on banks. As many as eight banks have exposure to the company, with the State Bank of India topping the list at 110 billion rupees ($1.5 billion).
Other lenders include IDFC First (32.40 billion rupees), Yes Bank (40 billion rupees), IndusInd Bank (35 billion rupees), Punjab National Bank (30 billion rupees), ICICI Bank (17 billion rupees), Axis Bank (13 billion rupees) and HDFC Bank (10 billion rupees).
The closure could also affect the telecom tower industry by way of heavy tenancy losses. According to rating agency ICRA, if Vodafone Idea ceases to exist, the tower industry may be confronted with the surrender of about 180,000 tenancies that it now occupies.
According to official data, Vodafone Idea had an adjusted gross revenue liability of 582.54 billion rupees ($7.94 billion) out of which the company has paid 78.54 billion rupees. A total of 504 billion rupees is outstanding.
It also has to pay nearly 15 billion rupees to the telecom department as liability every quarter over the next 10 financial years between 2021 and 2031.
India’s telecom industry has been facing headwinds since the launch of services by Reliance Jio Infocomm in 2016. Its freebies and predatory pricing disrupted the market, leading to a decline in revenue and profit generation.
Many operators such as Tatas, Telenor and others exited the market. Vodafone India had formed a joint venture with Idea Cellular in a bid to withstand the competition. The only other private telecom company to survive this shake-out was Bharti Airtel.
There have been reports that the Indian government is working on a package to mitigate the woes faced by the telecom sector. It is reported the telecom department is working out a package which could come out this month. Last week, Birla and Vodafone Global head Nick Read met telecom minister Ashwini Vaishnav.
In November 2019, the government offered a moratorium for spectrum payments till 2021-22, and it is expected this may be extended by a year or two. Earlier telecom operators’ body Cellular Operators Association of India urged the government to impose a 7-10 year moratorium for spectrum payments.