Call on hold

Vodafone Idea's debt conversion should not be delayed

More than a year after the Union Cabinet approved a much-needed relief package for the telecom sector, the government has kept on hold a crucial step that would prevent a duopoly structure in the sector. The government should walk the talk and keep its commitment without any delay to ensure that financially stressed Vodafone Idea — a joint venture between Aditya Birla Group and the UK’s leading telco Vodafone — remains a relevant player in the Indian market.

In the September 2021 Cabinet decision, telcos were offered the option to convert part of their dues into government equity. The objective behind the telecom relief package was to maintain three private players in the industry because a duopoly could run the risk of making the sector anti-competitive and limit the choice for consumers. In January 2022, Vodafone Idea opted for the debt conversion route, enabling the government to become the single-largest shareholder in the telco with a 35.8 per cent stake. The company board approved the conversion of the full amount of interest (valued at around Rs 16,000 crore) on deferred spectrum and adjusted gross revenue dues into equity. The shares were to be allotted to the government at a par value of Rs 10 per piece following confirmation by the Department of Telecom.

Months have passed since the Vodafone Idea board opted for debt conversion. But there’s no clarity from the government on the reason for delay. Unnamed officials have been quoted, setting new conditions from time to time before the government executes the debt conversion and picks up a stake. One of the conditions cited in media reports suggests that the government wants the Vodafone Idea promoters to make investments in the joint venture before any debt conversion can happen. Also, the government may be looking for signs from the debt-ridden telco to roll out 5G services. So far, Vodafone Idea has not given any specific plan for launching 5G services, unlike rivals Reliance Jio and Bharti Airtel. Yet another condition, reportedly, is that the government would acquire a stake in the telco after its stock price goes above Rs 10.

There may be merit in the government wanting Vodafone Idea to show willingness to revive its business by putting in money, but it should not go back on the Cabinet decision of maintaining a three-private player telecom market. On its part, Vodafone Idea has struggled to raise funds for a long time. In recent months, the telco was banking on government support vis-à-vis debt conversion to attract external funds from investors. But the uncertainty around the government picking up a stake has harmed the telco’s potential to raise funds. Over several months, Vodafone Idea — once a prized player — has continued to lose subscribers. Before the telco reaches a point of no return, the government must keep its word to arrest the fast slide of the sector into a duopoly. Once the government fulfils its promise on debt conversion, it should nudge the telecom firms to review their tariffs to make it a sustainable business as bailouts cannot last long. And indeed at that point the Vodafone Idea promoters must be asked to put their best foot forward and not remain passive onlookers.