As Vodafone Idea nears insolvency, should the government intervene? How much of the company's debt, monthly business losses, and loss of high-paying clients can an emergency bailout save it from?
The loss of Vodafone Idea will hit the exchequer the most, given the pitiful revenues from Anil Ambani's Reliance Communications and Aircel's demise. The company owes the government 96,300 crores for deferred spectrum, 61,000 crores for AGR (after SC verdict), and 23,100 crores for total borrowings/loans. Adding in the potential interest loss, the total government payment shortfall might reach Rs 2 lakh crore.
If the government does issue another stimulus package, it will be the third since 2017. Mukesh Ambani‘s aggressive entry into the mobile market in September 2016 slashed data pricing and made voice free for users. The incumbents Bharti Airtel, Vodafone India, and Idea Cellular (the last two merged in 2018) were hit hard since Jio had rendered voice free.
Whereas Jio identified a financial justification for increasing data and content consumption, others' business models still focused on squeezing consumers for voice and data, oblivious to the greater shift towards data, streaming, and OTT services. Sunil Mittal could steer his company out of trouble, but Vodafone Idea (controlled by the Aditya Birla group and the seasoned Vodafone) couldn't. The corporation slid rapidly.
The telecom department's incompetent handling is as much to blame as Vodafone Idea's terrible business strategy. The established companies should have looked for any predatory activities after a deep-pocketed challenger entered. Poor administration of state-owned BSNL and MTNL reflects the government's inept policies.
After the merger, Vodafone Idea went from being India's largest telecom provider with nearly 40 million users to the third largest with 26.8 million. If it declares bankruptcy, customers will rush to Jio, Airtel, or BSNL/MTNL. However, the sudden infusion of so many consumers will undoubtedly strain the already strained spectrum base, lowering service quality.
Less competition means corporations can hike tariffs again with ease. Indians utilise the most data, around 14GB per month, foreshadowing a near-digital revolution. Raise the price of data to halt the up. Massive markets like the US, China, and Korea require multiple competitors to maintain a healthy competitive environment and handle large user bases and costly technology updates.
