Memo To Vaishnaw: Letting Voda Bleed To Death Is Neither Good Politics Nor Economics

Vodafone Idea, now reduced to Vi in terms of branding, is struggling for life as neither government, nor promoters nor banks are eager to take a punt on its survival.

A few days ago, American Tower Corp, which houses many of Vodafone’s telecom towers along with those of its rivals, said that Vi may not be able to pay its contractual dues.

Another report says that Vodafone is in talks with the State Bank of India for lending it Rs 15,000 crore in order to roll out its 5G services, where it is seriously lagging behind Jio and Airtel. The bank is wary.

The government, for its part, seems to be dilly-dallying on its policy offer to Vodafone to convert a part of its dues into equity.

Now, according to a news report, the government says it will consider allowing this conversion after Vodafone rolls out its 5G services. This is a typical chicken-or-egg issue: without the government vote of confidence, banks may not lend, and if banks don’t lend, Vodafone can’t really roll out an effective 5G service across key consumer markets.

Meanwhile, in another related development, Vodafone plc just sacked its chief executive, Nick Read, after four years of poor share performance.

So, whoever is chosen to lead the company in future may want to take a hard look at whether to invest more in its Indian subsidiary (in a joint venture with the KM Birla group), or pull the plug. More delays are likely.

To sum up, neither its vendors, nor banks, nor the government, nor its promoters seem convinced about the viability of Vodafone India, which has been losing subscribers every month to Airtel and Jio.

In the Telecom Regulatory Authority of India’s last report (September 2022), Vodafone lost another four million subscribers – leaving it with just 249 million. Airtel has 364 million and Jio 420 million.

Clearly, Vodafone is being crushed between two aggressive players, with an overload of over Rs 2 lakh crore in debt above its head. A Damocles sword over its head would have been easier to handle.

This actually leaves the government with just two options: one is to do nothing, and allow India to become a duopoly (not an unthinkable proposition, since government-owned Bharat Sanchar Nigam Limited (BSNL) will always continue to exist) as Vodafone sinks into irrelevance; the other, probably the more sensible option, is to quickly convert almost all of Vodafone dues into equity, and either turn it around and sell it to a private investor, or merge it with BSNL and reverse-list the combined entity.

Vodafone is listed, and is listing badly in the stock markets. At a current market capitalisation of around Rs 25,000 crore, the government would essentially get it for “free”, since the dues owed to it would be more than enough to nationalise it.

As a government entity, writing off its Vodafone dues and reinvesting the same as equity would be politically okay, and a no-brainer.

Of course, nothing is really free, and the cost to the government is a writeoff on the assets side of its balance-sheet, which will show Vodafone dues as a receivable.

But Vodafone can't pay, and if it collapses, banks will lose too - and that will cost government at some point. The costs of letting Vodafone collapse are greater than the costs of its rescue and nationalisation.

The second option is better, for it could do two things: one, save crucial jobs at Vodafone; and two, bring in Vodafone’s marketing and other strengths to BSNL. With a combined 360 million users, BSNL and Vodafone can be viable if run well.

Doing nothing and allowing Vodafone to bleed to death is neither politically nor economically sensible. Communications Minister Ashwini Vaishnaw should tell the Prime Minister that doing nothing will have political and economic costs.