The Centre should stop dithering about acquiring a stake in cash-strapped Vodafone Idea. It’s been over a year since the proposal to acquire shares in financially stressed telecom companies was cleared by the Cabinet as part of an overall revival package for the telecom sector. The move was aimed at ensuring that the telecom sector does not become a duopoly.
In January this year, Vodafone Idea’s board approved a proposal to offer about 33 per cent stake to the Centre in lieu of ₹16,100 crore due in interest payments. Simultaneously, the operator initiated talks with banks and new investors to raise ₹25,000 crore in a mix of debt and equity. The banks and investors have refused any fresh funding to Vodafone Idea until the Centre goes through with its plan to acquire a stake in the company. The Centre now wants the existing promoters to bring fresh equity before the debt can be converted into equity. The promoters, Aditya Birla group and Vodafone Plc, are not keen on taking any more exposure to the telecom business. All this has led to stalemate that threatens the survival of the telecom operator. Vodafone Idea doesn’t have enough cash to pay its vendors let alone investing in rolling out 5G mobile services. While Airtel and Reliance Jio have announced billions of dollars to set up a nationwide 5G network, Vodafone Idea is struggling to keep the lights on. Millions of subscribers have exited Vodafone Idea network over the last year. Its vendors have declined to offer any new network equipment unless past dues are cleared.
The Centre could have handled the situation better. To begin with, the initial proposal to acquire equity in lieu of interest payments is a bad idea. Neither does it address the core issues facing the debt-laden telecom company, nor does it guarantee that the telecom market does not become a duopoly. At the centre of Vodafone Idea’s woes is the ₹2-lakh crore debt it has on its books. In addition to meeting its debt obligations, the operator will need another ₹25,000 crore this year to upgrade its existing 4G networks and roll out new 5G services. It is clear that fresh cash infusion is the only way Vodafone Idea can stay competitive with Reliance Jio and Airtel. The equity deal with the Centre will not reduce the operator’s overall debt pile nor will it result in improving cash flows.
The company is hoping that its efforts to find a new strategic investor could gain momentum if the Government becomes the largest shareholder. But one can’t be sure if investors will see this as a confidence-building measure or as a desperate move. The focus should be on making the operator thrive, not just survive. Instead of acquiring equity stake, a better approach would be to reduce licence fees and lower spectrum prices. Meanwhile, existing promoters of the company should complete its capital raise, accelerate investments, and stem subscriber losses. India’s one billion strong customer base deserves a solid third player.