Updated – 18/January/2020
Vodafone Idea May Survive the AGR blues as per a recent ET report. The company is planning to take some stern actions to stay afloat.
Why Vodafone Idea May Not Shutdown? 6 Steps Company Plans to take.
- Pay part AGR dues before the 23rd January deadline. VIL can pay upto Rs. 4000 crore to show the court and government that they have the intent to stay afloat and do business.
- Ask the Government to re-evaluate the dues and offer either more relief in terms of payment schedule or the interest on principal payment.
- According to DOT VIL owes 53,000 Crore in dues. However, the company is doing a self-assessment of these and sources say they may actually owe Rs. 44,000 Crore.
- The government owes VIL Rs. 9000 crores as GST input credit that the company intends to use to pay the AGR dues.
- Lastly, they plan to sell the data centers and optic fiber business along with an 11% stake in the Indus Towers to raise money.
- Also, the cash flow for the company has improved as they have increased the rates by up to 40%.
All of the above plus some help from the Vodafone Global and ABG group can make it possible for the company to survive and have a future.
Another interesting update is that RBI is urging the Government to bail out the company to ensure that the loans given by major banks don’t turn into NPAs.
Also, with the country burning due to CAA and other issues, it is not prudent for the Narender Modi government to have 300 million VIL users aggravated due to the company’s shutting. Not to mention, it will be a big hassle to port these users to other operators who may find it difficult to maintain QOS (quality of service).
17-Jan-2020 – The dark clouds of fear loom over Vodafone and Idea again. The Supreme Court of India has rejected the AGR relief plea filed by VIL, Airtel, and Tata-Teleservices. There may be panic in the share market, and the stock price is expected to tumble after today’s AGR judgment. (It tumbled 30% in the opening trade).
On 24th October, the Supreme court gave the judgment to widen the AGR definition and decided the case in DOT’s favor. Due to the change in AGR, Bharti Airtel needs to pay 35k Crore, VIL 53K crore, and Tata Teleservices 14k crore to the government.
Telecom operators were expecting some relief from the Honorable Supreme court but the court has decided not to offer any respite.
The review petition was heard by the same 3 bench judges panel (headed by justice Arun Mishra) who have given the original verdict. It was unlikely that they would have reversed the original verdict. The court is not considering the poor financial condition of the sector. Investors and promoters were expecting some relief from the court. However, there is none.
Mr. Kumar Mangalam Birla has already said they will shut shop if there is no relief on the AGR from the Supreme court or from the government.
On the other hand, Finance Minister Nirmala Sitharaman has already said that they are unlikely to offer much help on the matter apart from the deferment of the payments.
The date for the first installment of dues is 23rd January and we will probably know if VIL will live or die.
It will be a huge catastrophe for 1000s of families that depend on VIL and also for the investors, banks, vendors, and lenders.
Our Economy is already in turmoil, youth have no real jobs but to act as delivery boys for large e-commerce giants. Telecom Sector has space for more than 3 players and it is in the interest of consumers to have more choices.
If VIL shuts, the Telecom sector will be left with just Airtel and JIO who have already raised the price and will again raise it more in the future.
Recently, Airtel raised $3 billion to deal with the AGR dues. After the Review petition judgment, the company has said in a statement that they are disappointed with the outcome and are thinking of filing a curative review petition.
The curative petition is the last constitutional remedy available with a person/company whose review petition has been rejected by the Supreme Court. The chances for reversal of original judgment are slim but Telecos are hoping against all the odds.
It is evident that VIL and Airtel will file the Curative Review Petition in the Supreme Court and may get a different bench of judges to hear the petition.
Also, I think VIL has enough funds to at least pay some of the 53,000 crore dues if they want to and they will pay the upcoming installments. We will know for sure in a week’s time.
Also, we will have to see if the PMO and Finance Ministry offers some help to the distressed telcos who will find it harder to pump more funds in the 5G network after paying hefty dues.
So, let’s wait for official communication from VIL. Only after that, it will be more clear if the company will go with Mr. Birla’s words or will raise capital to fund the dues.
Updated – 27/December/2019
Vodafone Idea Halts Investment in 4G Network Expansion to Save Cash
As per the latest news, Vodafone-Idea has put the 4G network expansion plans on hold. “While existing orders are being fulfilled by the vendors, Vodafone Idea has put its new 4G expansion plans for greenfield sites on the major technology-driven investments on hold”.
Vodafone-Idea is in a distressed state; without the Government’s help, the ship may sink. Both ABG and Vodafone PLC have already raised hands and are not committing to invest Rs. 53000 Crore to bail out the company from the harsh AGR judgment.
The company’s 4G Vendors and technology partners – ZTE, Huawei, Nokia, and Erricson, are worried about their dues and the uncertainty of future orders. The company has to pay the installment for the AGR dues on 24th January, which is seen as a measure to save some cash and pay the due amount. Meanwhile, Airtel and Vodafone-Idea have also filed a review petition against the Supreme Court order and urged the government to look at the relief to ensure the companies can survive.
The flip side of not committing to network expansion is the adverse effect on network quality.
Users may suffer more call drops, slower data speeds, and poor call clarity. Notably, Airtel and JIO are already ahead of Vodafone-Idea in the number of towers they are operating. VIL subscribers are already unsure about the company’s future and may port out if they face network-related issues.
It is a catch-22 situation for the once-impregnable telecom giant.
Mr. Kumar Manglam Birla Says, “Will Shut Shop in the absence of AGR Relief.”
6/December/2019
Mr. Kumar Manglam Birla said at an event in New Delhi that they will have to shut shop without stimulus from the government.
“It doesn’t make sense to put good money after bad,” he said at an event hosted by the Hindustan Times. “So that would be the end of the story for us. We’d shut shop.”
“I have every reason to believe it won’t happen,” he said, referring to the possibility of liquidation. “But at the same time … it is true that we would shut shop if we don’t get relief. There is no company in the world that can pay that kind of fine in three months.”
Kumar Manglam Birla
Let’s read the full story of how once a shining star in telecom is on the verge of bankruptcy and liquidation.
How can the Biggest Telecom Company Shut Down? What is Wrong With the Indian Telecom Sector?
Back in 2017, when Vodafone and Idea merged, it was clear that all is not well in the Indian telecom sector.
The increasing pressure from JIO forced the two biggest telecom businesses to come together and form the largest company.
The revenue and profits took a deep dive with the launch of aggressive plans from JIO in 2016.
But somehow the companies were looking to pass the bad phase, hoping JIO will increase tariffs and they will be able to finally make some money from the business.
Vodafone-Idea posted a quarterly loss of over 4000 crores in early 2019 and losses were still mounting. Not to mention the cost of huge borrowing the company has for buying spectrum and 4G rollout.
These costs are not recovered yet and DOT has dealt another blow to the JIO rivals (Vodafone-Idea and Airtel) in the AGR case.
The Supreme Court verdict that came in October 2019, says that Vodafone-Idea needs to pay Rs. 39,000 crore and a similar amount by Bharti Airtel.
This is more money than what Vodafone-Idea can make in the next 5-8 years considering the current state of tariffs and debt.
I never thought I would be writing this post, considering when I joined the sunrise sector in 2008, fellow workers were getting double-digit hikes every year.
Nevertheless, Vodafone global CEO Mr. Nick Reads has said in a statement that the condition of the company is critical and it will be difficult for the company to survive if government of India fails to offer help.
Additionally, if the latest ET report is to be believed then Mr. Birla is also not considering to pump more money into the telecom black hole.
In a recent by HT on 5th December, Mr. Birla has clearly stated he is not willing to invest and will shut shop without relief from the Government.
AGR Issue and Government’s Decision (20th November 2019)
Indian Government has given some relief on 20th November by offering deferment of payment by 2 years. But there is no relief in terms of waiver of interest or principal payment.
Indian Government has specified that the NPV for the payment will remain the same and they will also charge interest on the deferred payment which is to be paid in 18 equal installments.
The situation for Voda-Idea becomes more complex as both the parent companies (ABG group) and Vodafone PLC need to be on the same page to pump more capital in a loss-making business.
There seems to be a clear divide at the moment and none of the parties are looking committed to investing more funds.
On the other hand, Mr. Sunil Bharti Mittal may be able to borrow and fulfill the current monitory obligations. In either case, the company will have a severe cash crunch and will find it difficult to operate smoothly.
No offense to the Honorable Supreme Court justice but I think the AGR judgment looks harsh considering the state of telecom companies and the logic used to calculate the AGR dues.
No offense to the Honorable Supreme Court justice, but I think the AGR judgment looks harsh considering the state of telecom companies and the logic used to calculate the AGR dues. Why telecom companies would need to pay a revenue share from non-core business revenues is difficult to comprehend.
Telecom Sector Outlook and Major Issues
Back in the day, after the 2G scam, all the licenses were canceled, and several companies shut shop in India.
None of the foreign investments have been successful, which sends a very strong message to the global investor community. Look at what happened to the 1000s of crores of investment made by Uninor (Norway), MTS (Sistema), Russia, and Aircel (Maxis) Malaysia.
Everything turned into dirt. Years of hard work and investments vanished due to government policy blunders.
Would anyone think of investing in the telecom sector in the future? No, not really, unless you are sure you can manage the government and the courts as you please.
The only people who have allegedly made money are either the government or those like the ex-telecom minister A. Raja who was acquitted later by the courts.
I am not worried about the loss of money to Mr. Kumar Manglam Birla (owner of Idea Cellular) or the Vodafone UK but about the monopoly in telecom and loss of jobs.
The job loss will not only impact direct employees, their families, distributors, vendors, and off-roll sales force but many indirect jobs.
Already, lakhs of people have lost jobs due to the shutting down of several telecom companies. At a time when the nation is struggling to create any employment for the young people, this can be a big blow for the Mr. Modi government.
There are already surplus telecom professionals looking for jobs in the market, with a major shutdown like this, things will become painful for many employees.
Also, there are hardly any suitable jobs for them considering a general slowdown in Automobile, FMCG, and retail sectors.
BSNL is dying a slow death and as we know the company has already decided to cut 50% of the workforce and is offering VRS to employees.
The only player left in the market is JIO.
Monopolies are bad, and nobody should have an absolute power whether it is Congress, BJP or for the record JIO in this case.
Even after the relief given by the government to defer the Rs. 39,000 crore payment things are not going to be easy for employees.
There may be more cost-cutting measures and loss of Jobs. Also, the company has increased rates by up to 50% from 3rd December along with Airtel and JIO.
Before the AGR judgment things were still looking positive as finally, TRAI refused to reduce IUC to Zero in favor of one operator. But the AGR judgment has shaken the industry. The 20-year-old conflict between the government and the companies can become the final nail in the coffin if nothing is done.
Overall, even after the relief given by the government, it is a difficult situation for Voda-Idea as the company has a huge total liability of nearly 1 lakh crore. It will not be easy for the company to become profitable unless the investors are willing to put in more money and continue for many more years.
Vodafone Idea Latest News and Updates – Job Cuts
25/Jan/2019 – Vodafone’s idea had cut manpower from 21,000 to around 14,500 from September to December and now we were informed that the company is planning to cut more jobs in the next 4-8 weeks.
The news came from reliable sources outside the organization that shared some details.
Struggling with profitability and subscriber decline, Vodafone-Idea needs to curtail manpower to reduce the fixed costs and make the company profitable.
The company plans to remove many job positions, and even circles/states may merge. Essentially, to leverage the economy of scales, several job positions are getting merged or even removed.
It is proposed that there is a further cut at all senior levels.
This will be difficult for some employees and will come in effect in the coming months.
Thanks to JIO’s aggressive pricing, already the sector has seen many companies pulling their shutter down and forcing the merger of these two giants.
It is hard for telecom employees as there are not too many opportunities in the sector anymore. For many moving to other sectors and securing jobs is proving frustrating.
Also planned merger of some circles:
- There may be a merger of some of the circles to improve the economy of scale.
All merged circles will have 1 Circle head and a single Marketing, Finance, CS, and Network team. Moreover, All CXO’s are told to cut their 1st line & 2nd line by a significant percentage.
Note* – The story is updated after a response from Vodafone-idea.
Response from Vodafone-Idea
In response to the published story, we have received an official response from Vodafone-Idea, which clearly states that there is no credence about possible job cuts by the company in the coming weeks. The company has stated that these are baseless rumors and shouldn’t be believed.
Updated – 25/Jan/2019
Vodafone-Idea Plans to Raise 25,000 Crore to Rival Jio
In another development, the company is planning to raise about 25,000 crores to battle JIO. The largest telecom operator in the country (Vodafone-Idea) is planning to sell the 11.5% stake in the Indus Towers.
Indus Towers is a telecom tower company jointly owned by Aditya Birla Telecom and Bharti Infratel Ltd.
Also, Read -Telecom Wars – JIO To Keep Tariffs Low, Users Rejoice and Rivals Bleed
The government (DOT) on Thursday, 30th July 2018 given a final accord to the Vodafone and Idea merger, and both companies are now merged entities. If a picture can tell you a thousand words, the below image tells you more.
The name on the door has changed from Idea Cellular Ltd to Vodafone Idea Limited (Aditya Birla Group and Vodafone Partnership). The office address now becomes Birla Centurian Compound, owned by the Kumar Mangalam Birla group.
The Vodafone office is also in Worli, Mumbai; some may also be coming to the new office to work soon.
The combined entity has more than 35% market share and is the largest telecom company in the country, with 435 million users. Both companies have paid Rs.7,268.78 crore to the government in the last week (under protest).
Mr. Kumar Mangalam Birla will be the non-executive chairman of the joint entity, and Mr. Balesh Sharma (Ex – Vodafone India Head) will be the CEO.
Vodafone and Idea Meger Earlier Details and Story So Far
As per recent updates, Mr. Kumar Manglam Birla has called an extraordinary General Meeting on 26th June 2018, where the new company will be renamed Vodafone Idea Limited from Idea Cellular Ltd.
Also, the company filed this news today with the regulatory, and the news of the company’s name change is confirmed. The name change may seem like a simple exercise but it is not there are several complexities.
First of all, both companies may have to re-work the brand identity and create new advertising campaigns, retail posters, banners, billboards, and even a new Logo. Updating every street and corner of the country with the new Brand identity may be a daunting and very expensive task (may run into 100s of Crores).
But it is a necessary exercise that probably the brand team for both companies will be planning currently, and we may see some new creative ads from the joint identity and new banners in the coming days.
Interestingly, will they also merge the social media pages and Twitter handles with millions of followers that are yet to be seen?
Also, Idea plans to raise a large capital of Rs. 15,000 crore via-non convertible debentures.
The final approval from DOT is still pending, but the expectations are that both companies will complete the merger process in the coming months.
Previous updates about the Merger.
The Vodafone and Idea Merger was announced in March 2017 the biggest telecom merger ever in India. It was one of the most shocking news in 9 years of my telecom experience.
Vodafone and Ideas are giants, employing over 10,000 people each, and a merger was never on the cards before JIO happened.
