How your life relates to Vodafone
Vodafone Idea is heading for bankruptcy. The biggest question is whether the government will save the company in such a situation. Assuming the company decides to save, will it be possible to save Vodafone Idea, which is in debt of Rs 1.8 lakh crore, with a help package? After all, thousands of crores are being lost every month and premium customers are also leaving the company.
If Vodafone sinks the idea, the biggest loss will be to the government. When Anil Ambani’s Reliance Communications and Aircel went bankrupt, the government was able to recover much less from them. Vodafone Idea owes the government about Rs 96,000 crore in spectrum. Following the Supreme Court decision, the liability on AGR’s account has increased to Rs 61,000 crore. State-owned banks also want to recover about Rs 23,000 crore from it. If the interest on the arrears is also added, the company could go bankrupt, costing the government Rs 2 lakh crore.
In such a scenario, if the Center brings a new package to save the company, it will be the third relief for the telecom industry after 2017. Vodafone Idea’s business and financial health deteriorated after Mukesh Ambani entered the telecom sector in September 2016 and started a price war. Ambani’s company made voice calls free and data very cheap. This caused huge losses to Bharti Airtel, Vodafone India and Idea Cellular. Vodafone India and Idea merged in 2018 after increasing trade pressure.
Geo’s aggressive stance initially shook Bharti Airtel as well, but the company managed to get out of the difficult phase. But Aditya Birla Group and Vodafone Group could not do such a feat and Vodafone Idea fell behind. The company’s poor business strategy is to blame, but the telecom department also made mistakes. When set-up companies are on an increasingly slippery path, the department should curb the tendency to provide services at a lower cost.
When Vodafone and Idea merged, it was the largest telecom company in the country with 400 million subscribers. Even today, it is the third largest telecom company with 268 million subscribers. If it files for bankruptcy, customers will rush to go to Geo or Airtel or BSNL-MTNL. This will greatly increase the pressure on the spectrum of these companies and degrade the quality of telecommunication services. On the other hand, the exit of a large company from the market will give companies a chance to raise rates again. Currently the average consumer in the country spends 14GB of data. In this sense, today India is one of the leading countries in the world. This is the beginning of the digital revolution in the country. If the data is expensive, it will have a bad effect.
There are three possibilities for the telecom sector- First, Vodafone Idea and Airtel have repeatedly demanded minimum rates for ‘floor price’ i.e. voice and data rates, but Geo does not agree. Even so, owning one is still beyond the reach of the average person. Second, the merger of BSNL and MTNL. If the two state-owned companies merge, it will put pressure on the coffers as they are still far from profitable even after a recent package of Rs 70,000 crore. Third, the possibility of a new company entering the country’s telecom market.
Well, it’s not going to be easy. If a company enters this market and has to invest heavily, the revenue per customer is the lowest here. Spectrum is also very expensive and the government has to pay heavy taxes. It is not possible to predict when the policy will change in the telecom sector. It will not be easy for a new company to compete with companies that are already in the field.
Disclaimer: The views expressed above are those of the author.
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