Delayed decision

Govt should have moved fast in Vodafone Idea matter

The Union government has finally decided to pick up a 33 per cent stake in Vodafone Idea, becoming the biggest shareholder in the financially stressed telco. On the face of it, this is a positive development. However, the delay in the government’s decision has done the telco and the sector much harm. The idea behind the interest-to-equity conversion move was to prevent the telecom industry from becoming a duopoly, which could have anti-consumer consequences. But the belated decision has failed to arrest the fear over the telecom industry turning into suchlike. This is largely because the telco has lost a large number of subscribers to its rivals over the past several months. It has also not made any headway in 5G services, while others are going all out. Besides, investment in its networks has been negligible and its cash situation has worsened, in addition to its inability to pay the vendors.
 

The promoters stuck to their position refusing to invest, and the company’s attempt to raise funds came to nothing because external investors lacked confidence in the telco in the absence of the government picking up a stake. Creating a chicken and egg situation, the Department of Telecommunications imposed a condition that the Vodafone Idea promoters must put in funds before the telcos’ interest of Rs 16,133 crore could be converted into government equity. Since promoters refused so far to infuse funds, the government too put its decision on hold. As a result, external funding became challenging. In a stock-exchange notification, Vodafone Idea said on Friday the Centre had passed an order directing the company to convert the net present value of interest related to deferment of spectrum and adjusted gross revenue (AGR) dues into equity for the government. The company was directed to issue shares for Rs 10 each. The confirmation came from Telecommunications Minister Ashwini Vaishnaw, who said the decision to convert interest into equity was taken after commitment from the Birlas — one of the joint-venture partners in Vodafone Idea — that fresh capital will come into the telco.
 

However, without any further information on the amount or timing of investment to be made by one or both the promoters, an assessment of the future course for Vodafone Idea is tough. Any meaningful fund-raising by external investors would remain a challenge unless the promoters move fast to control the damage. As the UK-headquartered Vodafone plc is in the midst of a cost-cutting and business-rationalisation exercise, its commitment to invest in the Indian telecom business remains to be seen. The Birlas are yet to specify their investment plans for a business that has gone from bad to worse since the government made the equity conversion offer in late 2021.
 

The latest government decision comes about 16 months after the Union Cabinet had approved a proposal to convert the interest on telecom firms’ spectrum and AGR dues into government equity. Although the offer was made to all telecom firms, the Vodafone Idea board opted for it early 2022. The government didn’t act all these months, initially without giving any reason and subsequently making the offer conditional that the promoters must invest first. Given the cautious investment climate, the revival of the telco, which has a debt pile of Rs 2.2 trillion as of September 2022, is that much tougher. Time has been of the essence in this case: The government should have saved some.