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3 reasons why Vodafone Idea will file for bankruptcy; 3 reasons why it should be kept alive

In the middle of action-packed two hours, Vodafone Idea announced its Q2 results where it posted net losses of Rs 50,922 crore, which is over 10 times higher than the losses in the previous quarter

twitter-logo Manu Kaushik   New Delhi     Last Updated: November 14, 2019  | 22:04 IST
3 reasons why Vodafone Idea will file for bankruptcy; 3 reasons why it should be kept alive
Provisioning for one-time AGR payout has hit Vodafone Idea's balance sheet hard

The last 48 hours have been action-packed for the beleaguered Vodafone Idea, the largest telecom operator in India with 375 million subscribers. After threatening to pull out of the country, the Vodafone CEO Rick Read has reportedly apologised to the Prime Minister Narendra Modi and squarely blamed the media for presenting distorted coverage of his comments. Read reportedly wrote to the PM expressing his gratitude to the government for designing a relief package in the wake of Supreme Court's judgment on adjusted gross revenues (AGR) asking telcos to pay up over Rs 92,000 crore to the Department of Telecommunications (DoT). In the middle of this commentary, the telco announced its second quarter results for 2019/20 in which it posted net losses of Rs 50,922 crore, which is over 10 times higher than the losses in the previous quarter. Vodafone Idea rival Airtel too posted phenomenal net losses of Rs 23,045 crore in the September quarter by way of provisioning for one-time AGR hit.

ALSO READ:AGR effect: Vodafone Idea Q2 loss balloons to Rs 50,921 crore

WHY BANKRUPTCY APPEARS INEVITABLE

Highest losses - Amongst the three private telcos, Vodafone Idea is in the worst situation. Its net losses for the September quarter stood at a record Rs 50,922 crore whereas Airtel is far better. Mukesh Ambani-led Jio, which is in a much better position than its two rivals, posted net profits of Rs 990 crore in the September quarter. Vodafone Idea has been posting net losses for the past three consecutive years that have eroded its net worth and cash balance.

Despite having the highest subscriber base amongst private telcos, Vodafone Idea's revenue market share (RMS) was lowest at 28.1 per cent as on June 2019 (as per TRAI) whereas Jio has the highest RMS at 31.7 per cent followed by Airtel at 30 per cent.

Lack of interest from parent companies - Both Aditya Birla Group and Vodafone have reportedly indicated that they are not interested in investing more into the merged entity if no help comes from the government. In the absence of any financial support from parents, and with the kind of losses that the telco is making, it would be nearly impossible for it to continue operations for long, and might soon file for insolvency.

Biggest subscribers' loss - Among all private operators, Vodafone Idea has seen the biggest subscribers' loss over the past year. For instance, the telco has lost almost 60 million subscribers between September 2018 and August 2019. Airtel lost just 15.77 million while Jio gained nearly 96 million in the same period.

ALSO READ:AGR provisioning blows Rs 23,045 crore hole in Airtel balance sheet

WHY VODAFONE IDEA MUST NOT DIE

Lesser competition - Vodafone Idea going down would mean that there will be lesser competition in the market that has already shrunk to a five-player market - out of which two are sick units (BSNL and MTNL). Lesser number of operators vying for the market share would also result in weakening of the checks and balances that the competition brings in. It's also possible that mobile tariffs would go up once the remaining operators add more subscribers migrating from Vodafone Idea. Jio is supposedly waiting to reach 500 million subscribers before it considers tariff hikes. That target could be achieved faster if Vodafone Idea files for bankruptcy.

Hurting the Brand India image - Although the government has set up a committee of secretaries (CoS) to deliberate on the measures to revive the sector. Allowing a large operator like Vodafone Idea to sink would send wrong signals to the global investor community who would think twice before investing in the country.

Job losses - In an economy where job creation is a challenging task, it would be tragic if people lose jobs. Vodafone Idea employs about 10,000 people directly, and the number of indirect employment would be roughly two-three times of that number. The sector has already seen large-scale job losses over the past three years. Industry lobby body COAI estimates that 50,000 jobs have been lost in the past three years owing to heightened competition, disruption caused by Jio, and consolidation in the sector.

ALSO READ:Airtel, Vodafone Idea, MTNL stocks fall as DoT pressure to pay up AGR dues mounts

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