Who gains if Voda-Idea fails

Who wins and who loses is a logical question to ask when a globally reputed company such as Vodafone is counting its days in India. The question comes against the backdrop of the government failing to step in effectively when the telecom sector needed it the most, the Supreme Court standing its ground without looking at the ramifications of a possible shutdown of Vodafone Idea, and the regulator Telecom Regulatory Authority of India or Trai remaining absent from the scene even as the world watches one of the biggest telecom debacles. All this while the phrase “adjusted gross revenue” (AGR) may well be on its way to be among the most searched terms.

If sources are to be believed, the once-celebrated telco is preparing to file for bankruptcy as both joint venture partners — UK-headquartered Vodafone and Kumar Mangalam Birla-led Idea—have said in no uncertain terms that they would not put good money after bad. That’s good enough reason for its close to 340 million customers to start thinking of porting their numbers to a safer platform. They have a choice between the two private players left in the fray — Bharti Airtel and Reliance Jio. Voda users have begun porting already so that they are not caught without a mobile connection later as in all likelihood Airtel and Jio (with 327 million and 369 million users, respectively) won’t be able to make room for every subscriber getting dropped from the financially-stressed telco’s platform.

That brings us to the question of winners and losers. While popular belief is that Jio and Airtel will gain by getting to share the Voda Idea subscriber base at a time when tariffs will only head north, things may not exactly pan out the way it is being imagined. Let’s begin with Bharti Airtel, a telco in which the market has shown immense faith. True that it’s got the funds to pay up its Rs 35,500-crore AGR-linked dues to the government. It’s also true that it would bag a good share of the Voda-Idea subscriber base, at least till the point its network capacity allows. But the burden on Sunil Mittal-led group would go up significantly on many counts.

If three operators — Airtel, Voda-Idea and Jio — have been together investing in the range of Rs 45,000-50,000 crore annually so far, the onus is now on two telcos. And that’s a challenge. Even on tower tenancy, the load will be more on the remaining two players. Also, Bharti Group, which earlier had a partnership with Vodafone, has shared a special bond with the UK-headquartered service provider. That has been evident in their joint representations in many forums including on the AGR dispute in courts. When Jio came as a disruptor changing the telecom game, Bharti and Voda-Idea stuck together on several issues.

That explains why Mittal accompanied Voda-Idea brass, including Birla, to meet ministers and bureaucrats several times in the past one year. On Wednesday, too, he did the same, to press for relief and help Voda-Idea stay in business. So, Mittal may not exactly be a winner in the duopoly system for some time to come.

Reliance Jio may share similar concerns, but it has the technology edge for the simple reason that it entered the scene much later. Also, for Reliance Industries, telecom is one of its many businesses, unlike Bharti Airtel. Jio, which is not burdened with legacy network and user base, may find it easier to increase its capacity to accommodate Voda-Idea subscribers faster. So, Jio is unlikely to feel lonely without Voda-Idea being around. That’s more like a winner.

But the government, which has been fighting the telecom industry on the AGR issue for 16 years, will be a real loser. The deeply bleeding telecom industry and the absence of a strong player would adversely impact the upcoming spectrum auction and the government’s signature project Digital India. That’s not something the government would have bargained for when telcos shifted to the revenue-share regime in 1999 and the AGR dispute began in 2003.

In the winner-loser debate, another question keeps coming up: Is there anything that can be done to save Voda-Idea? Well funds that can give loans to stressed telcos are being keenly watched. Also, the government could go for retrospective amendment of the AGR law. But will it, as thousands lose jobs and the equipment/network universe feels the heat?