For the last few days, there is news about the Vodafone Idea Telecom company, is unable to pay their spectrum dues to Govt of India. Yesterday there was news that Kumar Manglam, who is the major shareholder in the Vodafone Idea telecom announced that he is willing to offload Idea’s shares to Govt as the company is not in a position to pay the spectrum dues which are due in next financial year.
What is the issue involved in this matter:
As per the Govt, following the Supreme Court (SC) judgment, the telcos owe Ra 1.47 lakh crore in license fees (Rs 92,642 Cr) and Spectrum user charges (Rs 55,054 Cr). Of this Bharati Airtel owes Rs 35,586 Cr and Vodafone Idea owes over Rs 53,000 Cr.
In November 2019 the Govt approved a two-year moratorium to telecom operators on pending spectrum payment. Receipt of the installments due for 2020-21 and 2021-22 was deferred.
The deferred amount will be equally spread over the remaining installments to be paid by the companies, without any increase in the existing time period specified earlier for making the installments payments. This move helped Airtel prevent an outgo of Rs11,746 Cr, Vodafone Idea-Rs 23,920 Cr and Jio Rs 6,670 Cr.
Now the Vodafone Idea has informed that they will not be in a position to pay the installment due in 2022-23.
Today news has come that the govt is considering a lifeline for telecos through a moratorium on the mandated spectrum payments as part of a fresh set of measures to bolster the health of telcos. This comes at a time Vodafone Idea, which is facing acute financial problems, has sent an SOS to govt, citing possible impact to its subscriber base of 27 Cr.
The telecom department’s move, if it goes through, will be an extension to the already-running moratorium that was originally extended in November 2019 for fiscal years 2020-21 and 2021-22.
The bailout, if approved, will be for all telecom players and not just restricted to the ailing Vodafone Idea, where key shareholder Kumar Mangalam Birla has appealed for government intervention to ensure that the company remains a going concern. This would mean that any support will also be extended to other players such as Bharti Airtel and market leader Reliance Jio, and would be worth thousands of crores.
As per Ministry sources “The government is concerned about the health of Vodafone Idea and especially the fact that its further deterioration, or even collapse, may have a debilitating impact on their nearly 27 crore mobile customers and the financial system. A moratorium on spectrum payments is one of the options being considered. However, nothing has been finalised as of now.” This proposal is being discussed at the highest level, which includes Prime Minister’s Office (PMO).
The main issue is that if Vodafone Idea collapses, it will literally shake the telco market as their subscriber base is huge. The company has loans to the tune of Rs 1.8 lakh Cr, and losses stand at Rs 7,022 Cr. Apart from this, they have to pay to govt the spectrum dues, which is part of 10 years payment schedule approved by SC, which was extended to 16 years in 2017. The govt is looking into the possibility of working out a solution to ensure minimal disruption. The challenge for the govt, however, is to assess whether a fresh moratorium will be effective in saving the Vodafone Idea from bankruptcy.
However, companies had been mandated to pay interest on the delayed payments so that the NPV (net present value) of the payable amount was protected. Also, they had to provide the govt a financial bank guarantee of the revised annual instalment amounts payable subsequently. If another moratorium is extended now, the same terms would be applicable.
For the govt, the problem they are facing is whether to save Vodafone Idea or let the company go bankrupt. Even, suppose govt provides a moratorium for further 2 years, will the financial company improve or they will add on to more losses. Secondly, what will be the scenario post-Vodafone Idea’s bankruptcy, if that happens.
There are rumours in the market that some interested political persons and govt officials want Vodafone Idea to fail so that Reliance Jio can flourish. God forbids, if that is the scene then govt will also lose about Rs 50,000 Cr, which Vodafone Idea owes to govt.
In my opinion, the demand for such high spectrum fees was never viable considering the business models of all the telcos in highly competitive markets over the last 2 decades.
So let us see, what is next on this issue.
Waiting for your views/comments.
Anil Malik
Mumbai, India
4th August 2021.
Tejinder Singh Sethi
I agree that such high spectrum fees has resulted rising churn in the telecom sector in the country over the last decade. Jio, Bharti Airtel and Vodafone Idea are the only telecom companies surviving today, a far cry from the 15+ companies that populated the sector during its heydays. And Vodafone Idea is teetering on the brink.