If Vodafone Actually Quits, India Will Be The Bigger Loser

The last week of October, with all the festivity around, was hardly pleasant for the telecom sector. The Supreme Court verdict on October 24 upholding the government definition of adjusted gross revenue or AGR had hit all telcos, except Reliance Jio. But, for the UK communications major Vodafone, already in the midst of mounting losses in its India unit, it looked like an endgame. The top court order meant Vodafone Idea, the venture in which the UK operator holds 45 percent stake, had to pay around $4 billion (more than Rs 28,000 crore) in licence fee and spectrum usage dues to the government.

From there on, the sequence of events is intriguing.

A day after the court judgment, on October 25, Vodafone Idea said in an exchange filing that the verdict had “financial implications and represents a significant event with respect to the company”. It also said the company would engage with the Department of Telecom seeking relief, including a waiver of interest and penalties.

By this time, speculation around Vodafone’s likely exit from India were making headlines. Soon, TV channels and news agencies were also flashing that Vodafone Idea, with around $14 billion net debt, was in talks with banks for a debt recast and could be headed to the bankruptcy court. The Newbury (Berkshire)-headquartered conglomerate responded strongly to douse the fire. In a statement issued on October 31, the second largest telecom company in the world said, “Vodafone is aware of the unfounded and baseless rumours circulating in some of the Indian media that we have decided to exit the market. We would like to categorically state that this is not true and is malicious.’’

The same day, the India business-Vodafone Idea-made a filing to the Bombay Stock Exchange (BSE), which had sought clarifications from the company on media reports suggesting it may exit India as losses mount. “As regards exit of India operations by Vodafone group is concerned, we wish to inform you that the company is not aware about anything on the subject as it pertains to Vodafone group and hence cannot comment on the same,” Vodafone Idea told BSE. On the issue of debt recast, Vodafone Idea dismissed it as incorrect.

In less than two weeks, precisely on November 12, the British conglomerate stunned the world by negating its own statement of October 31, stating that its India business was on the brink of collapse. Chief executive Nick Read told the media in London after the company’s half-yearly results that Vodafone’s India unit could be headed for liquidation unless it got relief from the government in terms of waiver in taxes and penalties. “If you don’t get the remedies being suggested, the situation is critical,” he said in no unclear terms. And then to reiterate the point, he said, “if you’re not a going concern, you’re moving into a liquidation scenario — can’t get any clearer than that.” While writing down the book value of its India operations, Vodafone has squarely put the blame on “unsupportive regulation” and “excessive taxation”. The “negative Supreme Court decision” had of course, pushed it to the brink.

Although it’s rare and tough for a global chief executive to announce that a business had gone bad, it’s striking to find a multinational as big as Vodafone change its position on exit and bankruptcy within days. So, what happened between October 31 and November 12, to drive Vodafone to make a public statement that its India days may be numbered unless the government offered substantial relief?

There could be only two reasons for this desperate war cry. One could be that the UK telco sensed the government might not offer any big relief in terms of waiver of penalty and tax in relation to the AGR order by the Supreme Court. In that case, Vodafone might have decided to call a spade a spade and walk out of India, which was not too long ago the most promising telecom market.

The second reason could be a ploy or a last-ditch effort by the telco to convince the government to act quickly and decisively.

While Vodafone, which has been among the biggest source of foreign direct investment, would lose out on its current 300 million plus subscriber base and the promise of growth if it were to exit the country, India’s loss might perhaps be much bigger in terms of overall business sentiment.

The government so far has not taken any pro-active step to set things in order in the telecom sector, bruised by extremely low tariff because of competition. At a time when the government is calling out predatory pricing by foreign e-commerce companies to help Indian retail businesses, it’s time to take notice of the telecom sector tariffs without getting into the nationalities of the companies. Also, rather than whiling away time on recommendations by a committee of secretaries, the government must take a call at the highest level at the earliest, treating Vodafone’s exit call with all the seriousness that it deserves.―Business Standard