Why Vodafone Idea’s survival is important for the Indian economy

Vodafone Idea’s collapse will have far reaching consequences – on its 10,000+ employees, 30 crore subscribers, on the telecom sector and the economy of India.
Why Vodafone Idea’s survival is important for the Indian economy
Why Vodafone Idea’s survival is important for the Indian economy

Vodafone Idea is teetering on the brink of collapse. The telecom company is struggling in the face of the Adjusted Gross Revenue (AGR) dispute, and has been hoping for respite from the government to be able to pay its AGR dues. Because without relief, it will be forced to file for bankruptcy. 

Vodafone Idea owes the government Rs 53,000 crore in AGR dues, which is the percentage of revenue telecom companies are supposed to share with the government. After a 14-year long legal battle over what comprises AGR, the Supreme Court ruled in the government’s favour in October 2019. Of the Rs 53,000, Vodafone Idea has so far paid Rs 3,500 crore.

Ever since the AGR matter began to hover like a dark shadow over the telecom sector, Vodafone Idea has been clear in its stance. From Vodafone’s global CEO Nick Read, to Vodafone Idea chairman Kumar Mangalam Birla, the company has said that the company will shut shop in the absence of relief from the government and the Supreme Court. 

What makes Vodafone Idea different from companies such as Reliance Communications or Aircel that have gone bankrupt in the past, is the far-reaching consequences the collapse of a company the size of Vodafone Idea could have: loss of jobs for over 13,000 employees (as well as indirect employees – estimated to be six times higher), 30 crore subscribers, a duopolistic telecom sector, and the banking sector taking a hit amidst an economic slowdown.

Job losses

According to reports, Vodafone Idea had 13,520 direct employees as on March 31, 2019, along with thousands of indirect employees. 

When RCom and Aircel shut down in the past, most employees were absorbed elsewhere. Some reports even suggest that some former employees of RCom and Aircel are still looking for jobs. In the case of a company as large as Vodafone Idea, the situation will be much worse – especially because of the current economic slowdown, says Rajiv Sharma, the Head of Research at SBI Caps. 

If Vodafone Idea shuts shop, Rajiv says, it’s not just the employees that will suffer. It’s bound to have a multiplier effect. “Beyond the employees on the company’s rolls, there are a lot of contractual employees as well, and there is an ecosystem that will suffer.”

Thousands of employees being at the risk of losing their jobs will further increase the unemployment woes of the country. According to the Centre for Monitoring Indian Economy (CMIE) India's unemployment rate increased to 7.7% in December 2019.

Bad debts in banks

Vodafone currently has a net debt of nearly Rs 1.2 lakh crore (including deferred spectrum payment liabilities).

According to a Goldman Sachs report from January, several banks including State Bank of India, IndusInd Bank, ICICI Bank and Punjab National Bank have a huge exposure to Vodafone Idea. SBI alone stands to lose Rs 12,000 crore if Vodafone goes bankrupt and these banks will have to write it off as bad debts. 

Mahesh Uppal, Director at ComFirst, a company that specialises in regulation and policy in the telecom sector, says that Vodafone Idea also owes the government massive dues in deferred spectrum payments and AGR dues combined. Should it go bankrupt, the government will lose this money.


Vodafone Idea shutting down operations will mean that its 30 crore subscribers will have to port to either Jio, Airtel, or state-owned BSNL. And given that Vodafone has 30 crore subscribers, the transition to other networks will be anything but smooth.

Apart from making life difficult for customers who will now have to port, Airtel and Jio’s respective spectrum holding currently may not be able to handle the load of such a huge influx of new subscribers. Compared to the two, Vodafone had the highest spectrum allocation. This would mean additional investment for the two telecom companies. But some experts are of the view that they may not have the bandwidth to invest a lot in spectrum. This could lead to the quality of data, network, and calls deteriorating.

Why a duopoly is not good

Vodafone Idea’s collapse will lead to a duopoly between Jio and Airtel; it will also increase costs for Airtel, and this could pave the way for increase in tariffs, even more than they would have planned to increase. 

Rajiv says that Bharti Airtel has been sharing infrastructure with Vodafone and that had given it benefit on operational expenditure and capital expenditure. So, if that sharing is no more there, Airtel’s costs will increase. Plus, both Airtel and Jio will need more spectrum to accommodate the Vodafone subscribers.

“We’re looking at two levels of costs increase and given that, tariffs have to increase,” Rajiv says.

Options before the company

While Mittal and Birla met with the Finance Minister and the telecom secretary recently, the government too, is reportedly considering setting up a fund to facilitate operations of telcos after they pay their AGR dues, as a duopoly will not bode well.

According to IANS, the dues which have to be paid to the Department of Telecommunications would have to be put in the telecom fund, which can then be lent to the companies at a low interest rate, thus allowing telcos to maintain their status as a going concern and continue operations without turning to banks to raise funds.

Other options being looked at by the government include a waiver of interest and penalties on the AGR dues (which make up a huge chunk of the payable amount), or staggered payments with interest. The Prime Minister's Office (PMO) and the Law and Finance Ministries will have to take the final call.

However, in the absence of relief, experts are of the opinion that Vodafone Idea will be left with two options – a curative petition, or filing for bankruptcy.

Mahesh, however, says that it is unlikely that a curative petition would be successful, especially because the chances of the Supreme Court reviewing its order would be very low.

Why govt should intervene

The government has another reason to ensure that Vodafone Idea stays afloat — ensuring that India is looked at as an investment destination. The failure of a telecom company so large due to regulatory hurdles would send a negative message to investors looking at India.

Rajiv says that the Indian telecom story has its share of lows because of the number of telecom companies that have shut down. But those were because of pure commercial reasons. 

But in the case of Vodafone and Idea, though they merged a little later than they should have, they could have continued for quite some time. “If a business shut down is linked to an adverse regulatory outcome, that becomes a matter of concern, and it doesn't really go well with potential investors,” Rajiv says.

Concurring with Rajiv, Mahesh says that while one shouldn’t absolve Vodafone Idea of its share of responsibilities, it’s also clear that the blame for the current situation is the government’s regulations.

“Vodafone is a fairly important international mobile operator. Shutting down will not set a great example for ease of doing business in India,” he says.

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