Why Vodafone may collapse and end their services in India

Vodafone Exit from India

Due to the recent ruling from the Supreme Court, the Indian Telecom industry is facing major losses and excessive debts. The latest telecom news was how the major players of telecom have reported losses in the last quarter-end. This ruling by SC just makes the situation worse for Vodafone-Idea and Bharti Airtel.

While addressing the press conference Vodafone CEO Nick Read said the company could enter the liquidation process if the Indian government does not ease spectrum fees. Considering the present scenario Vodafone Group has decided not to invest any more in businesses in India. In particular, it is requested that spectrum rates be divided over 10 years and that interest and fines be exempted. “If you don’t get the remedies being suggested, the situation is critical,” Vodafone CEO Nick Read said at a press round-table in London on Tuesday. “If you’re not a going concern, you’re moving into a liquidation scenario—can’t get any clearer than that.” Vodafone wants a two-year suspension of spectrum fees, license fees, and tax cuts. Last year in August the Voda Idea merger happened to survive against the tariff war and reduction in profit margins with the entry of Reliance Jio. However, this subsidiary of the Vodafone group is supposed to pay $ 4 billion in fees to the government, which was due last month. With the 5G auction approaching, Vodafone is already in debt of $ 14 billion.

Similarly, the other biggest telecom of India Airtel is also in the midst of cruel fate. Earlier in September, in the quarter-end, Airtel reported loss of around Rs 20,000 crore. Airtel recorded these unprecedented losses and is its highest loss in 14 years. This is due to the on-going rivalry with Reliance Jio who is immensely adding millions of subscribers to its already 300 million subscriber base.

In this cut-throat competition when the telecom industry is collapsing Reliance Jio makes huge profits in the quarter-end. This ongoing competition in the Telecom industry initiated since the arrival of Reliance Jio in 2016. To beat the affordable services offered by Reliance Jio rest of the telecom had to reduce their pricings affecting their profit margins.

This conflict between DoT (Department of Telecommunications) and Cellular Operators has been going on since 2005. The telecoms challenged the DoT’s definition of AGR calculation. Now that Supreme Court declared its ruling favoring DoT’s argument the Indian Telecom is liable to pay AGR in billions.

What is AGR?

The AGR or adjusted gross revenue is something paid by the Telecoms to pay the license fee and spectrum fees as their share of the revenue. DoT stands firm on their AGR calculation and wants the Telecoms to pay for both telecom and non-telecom services. While the Telecom industry appeals not to incorporate the revenue generated from non-telecom services.

Final Verdict by Supreme Court

The final verdict of the Supreme Court came out during October which upheld the DoT’s argument implying that all the telecom companies are liable to pay all the dues. This has led the Indian Telecom to face massive losses. It has majorly hit Bharti Airtel and Vodafone-Idea as they have to pay an estimated Rs 39,000 and Rs 41,000 crore respectively. While the latest telecom company Reliance Jio has pending charges of Rs 41 crore only. While the bankrupt Reliance Communications owes Rs 20,000 crore. Also, the Tata Teleservices which was sold to Airtel has dues of Rs 13,000 crore.

The fate of the Indian Telecom Industry

The fate of the Indian Telecom Industry is a bit unclear as the 5G spectrum auction is approaching the biggest Telecoms are still in billions of debts. The latest TRAI news was the conflict between Reliance Jio and TRAI on the IUC policy. Due to the IUC policy by TRAI Reliance Jio was paying Rs 13,000 crore every year as interconnect usage charges to the other networks. However, Reliance Jio is rising against every obstacle and is all set to make huge profits when the rest of the telecom industry is falling to pieces. It is the undeniable fact that these damaging implications are going to hit hard the Telecom industry. Given their financial state the Telecoms has asked to relax the dues to avoid the adverse financial repercussions.

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