In September 2021, the Union government announced a series of measures to support the ailing telecom sector. These included redefining what constitutes adjusted gross revenues, cutting spectrum usage charges, and a moratorium/deferment on unpaid dues, among others. As part of the measures, the government also created an option that allowed for the conversion of interest amounts and dues pertaining to deferred payment into equity. In early 2023, the government chose to convert Rs 16,133 crore of interest dues owed by Vodafone Idea into equity. And now, a few days ago, it decided to convert the outstanding spectrum auction dues of Rs 36,950 crore into equity. As a consequence, the government will now own roughly 49 per cent of Vodafone Idea. The existing promoter, the Aditya Birla Group (its stake in the entity will come down from 14.41 per cent to 9.5 per cent) and Vodafone Plc (whose ownership will fall to 16.07 per cent from 24.39 per cent), will, however, continue to exercise operational control over the company.
This conversion will ease the company’s cash flow woes, giving it breathing space in the near term. But the question is: Will it help turn around the fortunes of the beleaguered telco? Vodafone Idea has been seeing a steady erosion in its customer base. As of December 31 2024, the company had 199.8 million subscribers, down from 215 million in the third quarter of 2023-24. Its average revenue per user (ARPU) stood at Rs 156 in September 2024 compared to Bharti Airtel’s Rs 233 and Reliance Jio’s 195. The company also has the lowest data usage (GB per subscriber per month) amongst the three players. Its strategy to improve its position seems to rest on undertaking capital expenditure to strengthen its 4G network and roll out 5G services speedily which could help push up subscriber numbers and revenues. But, as reported in this paper, Vodafone Idea also owes around Rs 2.3 lakh crore as of December 2024, of which Rs 77,000 crore is on account of AGR dues and Rs 1.4 lakh crore is the spectrum liability. Any further conversion of dues owed by the telco would result in the government’s stake crossing 50 per cent. Should continued support be extended to the financially stressed telco?
The Indian telecom sector is dominated by two strong players — Reliance Jio and Bharti Airtel. There is a concern that in the absence of support extended to Vodafone Idea, and with public sector telcos continuing to struggle, a duopoly-like market structure would be to the detriment of consumers. But the focus of policy should be to protect competition, not financially stressed competitors. Government should facilitate the entry and exit of private players. Any other intervention will only risk distorting the market.
