Vodafone bailout shows urgent need for policy reforms
The government will emerge as the largest shareholder of Vodafone Idea, acquiring a 35.8% stake in lieu of the Rs 16,000 crore pending interest payments. Stake acquisition of private entities was never on the government’s agenda and serves at cross purposes, given its deep desire for privatisation. The biggest achievement this fiscal is undoubtedly the sale of Air India, but owning up stake in Vodafone, even out of compulsion, seems ironic just when the annual disinvestment target is likely to be missed by a country mile. The rescue act isn’t finished yet, as being the largest shareholder, it’s in the government’s interest to protect Vodafone’s equity value so that the telco doesn’t break the buck.
Much of the telecom operators’ suffering was due to intense tariff wars and policy pitfalls. They suffered a fatal blow when the verdict in the Adjusted Gross Revenue case went in favour of the government. The worst hit among them was Vodafone Idea, which has one foot in the grave, reeling under a debt burden of `1.95 lakh crore. Its subscriber base crashed from 400 million to some 250 million, while its market share plunged from 35% to 24%. Now, the government’s bailout package eases its cash flows and improves the near-term liquidity concerns reducing its payment outgo.
On its part, Vodafone must give its all to raise long-term funding needed to acquire 5G spectrum, accelerate network investments, arrest subscriber attrition, and regain lost customers and market share. Importantly, it must start making money soon so as to meet its enhanced payments to the government once the moratorium period ends.
But Vodafone’s survival also rests on two other stakeholders—the government and arch rivals Bharti Airtel and Reliance Jio. First, telcos must be bent on increasing average revenue per user as that’s the only way to pull through. As analysts note, an increase in tariffs appears certain now that the likelihood of Vodafone’s demise is a less-likely event. Lastly, the government, with stakes in multiple telcos, must ensure a sound policy regime to avoid the need for further relief packages.