The Great Indian Telecom Mess

The Great Indian Telecom Mess

Atiqul Habib | February 22, 2020 15:00 hrs

GUWAHATI: With the progress of the telecom revolution in India, the entire ball game has changed to such an extent that reputed telecom service providers are either facing a harrowing time meeting statutory requirements or are faced with declaring bankruptcy.

Such is the case of the government-owned and cash-strapped Bharat Sanchar Nigam Ltd (BSNL) that it has been constantly struggling to cope up with the new age technology in order to sustain in the ‘data driven spectrum.’

Meanwhile, the BSNL board has approved reducing retirement age to 58 years, VRS for employees 50 years or above and reportedly approved the proposal to lay off over 54,000 employees in which employees from Guwahati had already faced the burnt in the month of January 2020.

This move by the state conglomerate is expected to help the government-run telecom firm save Rs 13,895 crores on the wage bill over the next six years, whereas the VRS might help it save Rs 1,671 crores to Rs 1,921.24 crores every year, a report said. The decision to announce a VRS package could help the embattled telecom operator save up to Rs 1,921 crores annually but at a cost of Rs 13,000 crores.

Vodafone Idea, which was created after the merger of the Indian arm of UK telecom player Vodafone and Idea Cellular - an entity of Aditya Birla Group, is on the brink of closure as the Supreme Court has ordered it to pay its Adjusted Gross Revenue (AGR) dues of Rs 53,000 crores.

Speaking to G Plus, one of the senior employees at Vodafone said, “As there is no clarity with regard to the company’s call on the pay out of the AGR, the staff is a bit shaky now and considering alternatives.”

It is to be mentioned that there was a shake-up recently in the company’s hierarchy but with the latest round of the Apex Court’s order, it has come as a bombshell to the employees making them think about the fate of Vodafone.

Earlier, Vodafone in the northeast had a good share of the market and enjoyed a feasible profit. However, with the advent of the merger with IDEA, the market share went down in the northeast, hence becoming the smallest market pan-India.

While Reliance Jio and Airtel delivered a sizeable customer base with freebies of free data and extended validity in northeast, Vodafone Idea decided to take out most of its business structure in a ‘Hub and Spoke Model’, wherein the vested control will be outside the northeast, likely in West Bengal.

With this, there is concrete certainty of layoffs of employees among the higher-ups of the organisation.   

From the customers’ mindset, it’s quite apparent that if Vodafone Idea, with its 370 million subscribers, is pushed to bankruptcy, everybody will lose. The Indian telecom sector will turn into a private sector duopoly with Reliance Jio and Bharati Airtel being the only players to offer services.

This will also allow existing telecom operators to charge substantially more than the current net charges. In the context of the recharge plans offered by the duo-players, it is seen that the price war in placing their packs have eventually burnt a hole in the commoners’ pockets.

Customers will be the worst off having to choose between just two private telecom services providers. 

On the other hand, Airtel in a quick response has agreed that they will cough up Rs 10,000 crores by 20th February and the remaining before the next hearing.
The promoters of Vodafone-Idea, Kumarmanglam Birla, speaking to media said that they are not going to infuse fresh equity into the project. 


Who will gain from the debacle of Vodafone Idea?

In the post Vodafone Idea closure scenario, assuming a 40:60 share of Vodafone Idea’s subscribers for Jio and Airtel, Jio could see an earnings before interest, tax, depreciation and amortisation addition of Rs 15,000 crores, while that figure could be Rs 10,000 crores for Airtel, according to an analysis by Motilal Oswal. It added that these figures could have a 50% margin.

For Jio, this would mean a jump of 29% on EBITDA to Rs 67,100 crores in the financial year 2021-2022. For Airtel, this would mean a 22% jump to Rs 54,700 crores. Rajiv Sharma, research head at SBI Cap Securities, estimates the adjusted value of Vodafone Idea’s spectrum that the company acquired in the previous auctions is roughly $14 billion.

Analysts said that Bharti Airtel will be the biggest beneficiary if Vodafone Idea fails.
“In case of Vodafone Idea going into National Company Law Tribunal, Bharti will gain substantial market share and will be the beneficiary," Jefferies India Pvt Ltd said in a note.

Currently, Vodafone Idea has 304 million subscribers out of which 104 million are 4G users. Jio has 370 million 4G subscribers. Bharti Airtel has 283 million subscribers out of which 123 million are 4G users.

So, will Vodafone Idea Limited shut shop? It is a tricky situation as the company can go in any direction.

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