Vodafone Idea’s dire situation continues to haunt the company, its subscribers and to an extent, the government.
Between Kumar Mangalam Birla stepping down as the non-executive chairman of the company, and offering 27% stake to the government, and the British parent Vodafone Plc., refusing the infusion of additional equity in Vodafone Idea, things are looking dire for the third largest telco in the country.Simply put, it seems like a problem no one wants to solve – not the company’s promoters, not the government, and certainly not the courts. This has the potential to put over 270 million subscribers, and the company’s employees, in jeopardy.
The telco has already lost over 51 million subscribers since the
beginning of 2020, while its rivals Airtel and Jio have together gained
83 million subscribers.
A government intervention seems to be in everyone’s interests. But since that seems far-fetched at the moment, Business Insider spoke to experts to understand what could happen if Vodafone Idea goes out of business.
A government intervention seems to be in everyone’s interests. But since that seems far-fetched at the moment, Business Insider spoke to experts to understand what could happen if Vodafone Idea goes out of business.
What happens if Vodafone Idea dies?
This is one question that can have different answers depending on who
you ask. The answers range from a duopoly to tariff hikes for
subscribers, loss of revenue for the government and collateral damage to
ancillary service providers.
The death of Vodafone Idea will immediately lead to the Indian telecom market falling back to a duopoly, with Airtel and Reliance Jio sharing the subscriber market share amongst themselves.
A return to the 1990s duopoly
The death of Vodafone Idea will immediately lead to the Indian telecom market falling back to a duopoly, with Airtel and Reliance Jio sharing the subscriber market share amongst themselves.
A duopoly is a situation where two companies together own all or most of
the market share. It can have the same impact as a monopoly if the two
players collude on prices or output.
“We started with a duopoly. We introduced more people because we were not happy with what the two guys were doing and we are back to that,” explained Sanjay Kapoor, the former chief executive officer (CEO) of Bharti Airtel, in an exclusive interview with Business Insider.
To recap, the Indian telecom market went from being a monopoly run by the Department of Telecommunications to one with several players like Reliance Communications, Airtel, the erstwhile Hutch (which was later acquired by Vodafone), Idea, Tata Docomo, Virgin Mobile, Aircel, among others.
“We started with a duopoly. We introduced more people because we were not happy with what the two guys were doing and we are back to that,” explained Sanjay Kapoor, the former chief executive officer (CEO) of Bharti Airtel, in an exclusive interview with Business Insider.
To recap, the Indian telecom market went from being a monopoly run by the Department of Telecommunications to one with several players like Reliance Communications, Airtel, the erstwhile Hutch (which was later acquired by Vodafone), Idea, Tata Docomo, Virgin Mobile, Aircel, among others.
Today, the Indian telecom market is majorly divided amongst Reliance
Jio, Airtel and Vodafone Idea, with government run BSNL and MTNL, and
others being marginal players.
In case Vodafone Idea dies, the cost of maintaining the telecom
infrastructure will be divided between two companies instead of three,
thereby leading to an increase in cost of operations.
This, Kapoor says, will be passed on to the customers.
“Having a duopoly means the consumers will end up paying a lot more, and that is not good for the kind of technological advancements that even the government wants to see in the country,” Kapoor explained, alluding to the forthcoming 5G spectrum auctions, which could be hampered in case there are only two operators left in the country.
This, Kapoor says, will be passed on to the customers.
“Having a duopoly means the consumers will end up paying a lot more, and that is not good for the kind of technological advancements that even the government wants to see in the country,” Kapoor explained, alluding to the forthcoming 5G spectrum auctions, which could be hampered in case there are only two operators left in the country.
Banks and ancillary service providers will suffer too
Vodafone Idea currently has an outstanding debt of ₹1.75 lakh crore. If its assets are not enough to repay the creditors, they will have to write down their loans to the company.
In case Vodafone Idea dies, the bankers and service providers will have to take a huge haircut, too, as opposed to a scenario where the telco is operational and manages to repay its debt.
Some of the banks with large exposure to Vodafone Idea include the likes
of IDFC First Bank, Yes Bank and State Bank of India, among others.
Banks’ exposure to Vodafone Idea:
Source: Nomura
Banks’ exposure to Vodafone Idea:
| Bank | Amount | % of loan book |
| IDFC First Bank | ₹3,240 crore | 2.90% |
| Yes Bank | ₹4,000 crore | 2.40% |
| IndusInd Bank | ₹3,500 crore | 1.65% |
| Punjab National Bank | ₹3,000 crore | 0.44% |
| State Bank of India | ₹11,000 crore | 0.43% |
| ICICI Bank | ₹1,700 crore | 0.23% |
| Axis Bank | ₹1,300 crore | 0.21% |
| HDFC Bank | ₹1,000 crore | 0.09% |
Source: Nomura
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