Vodafone Idea will have to ‘shut shop’: Kumar Mangalam Birla’s startling admission

FE Online

Aditya Birla Group Chairman Kumar Mangalam Birla today sounded alarm bells on the future of India’s third largest telecom services operator Vodafone-Idea, saying that the company will have to shut down if it doesn’t get any more relief from the government. "We will shut shop if we don’t get relief, it could be the end of the story for us. There is no company in world that could get that kind of money in three months. It’s a very sad thing to happen though I don’t want that to happen,"KM Birla said at the Hindustan Times Leadership Summit 2019. Veteran industrialist K M Birla’s comments come close on the heels of his telecom venture’s overseas partner Vodafone CEO Nick Read’s remarks on similar lines earlier last month. "If you don't get the remedies being suggested, the situation is critical. If you're not a going concern, you're moving into a liquidation scenario-can't get any clearer than that," Vodafone CEO Nick Read had said at a press round-table in London, but later said that his comments had been taken out of context by the media.

Also read: H&M wants people to buy less clothes; here's what it is doing to make money

India’s incumbent telecom firms such as Bharti Airtel, and Vodafone-Idea combine, have been under tremendous financial stress due to competitive pressure from Mukesh Ambani’s new entrant Reliance Jio. Bharti Airtel, and Vodafone Idea, had to cut tariffs and bleed margins, in order to sustain customers in the wake of dirt cheap services offered by Reliance Jio. The competitive intensity forced Vodafone India to merge with Idea Cellular, in order to prevent going bust. India’s telecom companies’ financial troubles were recently exacerbated by the recent Supreme Court ruling on pending AGR dues. Vodafone Idea and Bharti Airtel reported a combined loss of nearly Rs 75,000 crore for the second quarter ended September 30, 2019 results after the Supreme Court asked telecom companies to pay Rs 92,000 crore to the government as Adjusted Gross Revenue (AGR). However, now the government has provided relief to the sector in terms of a two-year moratorium on spectrum-related dues.

The Union Cabinet deferred thousands of crores of rupees in dues from the telecom companies towards spectrum payments, freeing up some cash for the firms reeling under immense financial stress. The spectrum payment installment dues have been decided to be deferred from the year 2020 to 2022, without any increase in the charges, Finance Minister Nirmala Sitharaman announced. The combined relief for Bharti Aritel and Vodafone Idea amounts to Rs 42,000 crore.

Meanehile, Bharti Airtel and Vodafone Idea have raised tariffs effective December 3, following which the mobile calls and internet charges have gone up bu up to 50 per cent. Reliance Jio 's revised tariffs will is effective from today which will lead to the voice and data tariff increasing by up to 40 per cent. Idea Vodafone share price plunged by more than 8% to hit the day’s low at Rs 6.66 on BSE.