India’s third-largest mobile service provider, Vodafone Idea Ltd, will soon shut down if the government does not provide any relief on the liability it faces.
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How Did This Happen?
According to the company’s billionaire chairman Kumar Mangalam Birla, the company will soon shut down if they don’t get any relief from the government for the past statutory dues according to a Supreme Court order.
While talking about the future of Vodafone Idea, Birla said “If we are not getting anything then I think it is end of story for Vodafone Idea”, in absence of a government relief on payment of Rs 53,038 crore dues.
Last year, Birla’s Idea Cellular and British telecom giant Vodafone plc’s India unit had merged to compete with the onslaught of free voice calling and cheap data provided by richest Indian Mukesh Ambani’s Reliance Jio.
While doing so, they accumulated a debt of Rs 1.17 lakh crore and had few weeks back recorded India’s biggest corporate loss so far.
Moreover they provisioned for the liability arising from the Supreme Court upholding the government’s position on what base should statutory liabilities be calculated
Will They Invest More Money?
While answering the question about whether they will put more money for the company’s revival, Birla said “It does not make sense to put good money after bad. That would be the end of the story for us. We will shut shop,”. (Reference)
According to the reports, market leader Bharti Airtel, Vodafone Idea and other telecom players have to pay as much as Rs 1.47 lakh crore in payment of telecom license fee and spectrum usage charge together with interest and penalty for past 14 years.
What Is The Next Move For Vodafone?
Currently, both Airtel and Vodafone Idea have petitioned the government for relief in waiver of interest and penalty, according to that it will halve the dues, and also filed a review petition in the Supreme Court.
If we talk about Birla, They seem hopeful of a relief from the government, as they are expecting not only telecom sector but the industry as a whole to pull out the economy from a six-year low GDP growth of 4.5%.
He said “they (the government) have realized the fact that this (telecom) is a very critical sector. The whole digital India program rests on this. This is a strategic sector,”.
What About Government Of India?
He added that the government has publicly stated that it wants three players from the private sector and one player from the public sector.
He said “I think that we can expect much more stimulus from the government because it is required for the sector to survive. If we weren’t getting anything then I think it is the end of story for Vodafone Idea,”.
The government had late last month deferred by two years the payment due to telecom companies for spectrum they bought in past auctions.
The total relief provided was Rs 44,000 crore for the industry but the companies are supposed to pay this due together with interest after the two-year moratorium.
What About AGR?
“The big elephant in the room is AGR. Which is actually I think something which lies in the court of judiciary. I believe the government can have a dialogue. This was a suit filed by the government against telecom service providers,” said Birla while talking about the specific relief.
Where AGR refers to adjusted gross revenues, a percentage of which the telecom companies pay as statutory dues.
On the other hand, the Supreme Court had supported the government position that non-telecom revenues have to be included in the AGR for calculating dues.
Birla said “Since the government has won, it gives them headroom to talk to judiciary and try to find some of the solutions. I don’t know which form or shape it takes,”.
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