A week ago, some rumours started doing rounds in the Indian telecom industry. The rumours were that Vodafone was looking to exit the Indian market. This caused some worry to Vodafone users, worries that were allayed when Vodafone UK, the parent company, called the rumours baseless and malicious. While, it seems there is no imminent plan by Vodafone to leave India, not everything is right with its business. The company believes that an adverse regulatory environment is making it difficult for Vodafone to do business in India. The situation is so bad that Vodafone CEO Nick Read now believes that the "carrying value" of its business in India is zero.
A fresh report from Bloomberg states that the India venture of Vodafone is in a perilous state. The report hints that the company may shut down its India operations unless the Indian government gives some relaxation to the company on demands for mobile spectrum fees.
"If you don't get the remedies being suggested, the situation is critical," Vodafone CEO Nick Read was quoted by the report. He was apparently speaking at a press meet 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."
So what is going on and what it means to Vodafone users? Here is what you need to know.
-- On October 30, reports started pouring in that the company is ready to "pack up and leave any day now." The reason cited by the reports was mainly the mounting losses of the company and dwindling market capitalisation which adversely affected the balance sheet of Vodafone Idea.
-- While the business environment is challenging, with Jio seem to be enjoying an upper hand due to various factors, and Airtel competing hard, what seems to have hit Vodafone the hardest is the money it has been asked to pay after Supreme Court upheld the central government order on Adjusted Gross Revenue of Airtel and Vodafone. The telecom companies have been asked to pay around Rs 92,641 crore to the government. Of this, around Rs 80,000 crore has to be paid by Vodafone and Airtel. Jio also has to pay, but significantly less than what Airtel and Vodafone have been asked to pay.
-- This payment is the real worry for Vodafone, because it effectively wipes out whatever value the company has put on its joint Vodafone-Idea joint venture. To tackle this, Vodafone is now demanding a two-year extension on spectrum payments and lower license fees and taxes from the Indian government. It also wants its spectrum payments demanded by the court to be spread over 10 years with a request to wave off the interest and penalties.
-- A few days after the rumours of its exit from India started, the Vodafone Group in the UK, on October 30, released a press statement calling the rumors baseless. It said that its India venture was going through challenging times but it wasn't looking at any exit.
-- But not all is well, as the news report suggest. So should the Vodafone users worry? Not really. Not at the moment. If you like your Vodafone connection, keep on using it. It's not going anywhere.
-- Even if Vodafone pulls out of India, it's services are not going to shut down immediately. Even if Vodafone decides to leave India, the whole process will take time.
-- In case of any change in the business strategy, or something like Vodafone leaving India, there is every possibility that consumers will be either moved to some other service automatically, or their services will continue in the same way with a new owner. In the worst case, consumers will be asked to move to some other service, but they will get plenty of time to do so. So, no need to panic or worry right now, and there almost no possibility that you will lose your Vodafone phone number.
-- A bigger worry, in case Vodafone leaves India, will be for all telecom users and not just Vodafone users. If Vodafone leaves, and its place is not taken by any other company, the market will effectively become duopoly with Jio and Airtel only players. This will be particularly troublesome because MTNL and BSNL are also in no shape to compete well. Monopolies or duopolies are never good for consumers.