Recently, a lot of Indian telecom companies have been facing trouble and losses. A few days back, BSNL too faced a problem and the employees chose for Voluntary Retirement Scheme (VRS). Now Vodafone is in the controversy for its losses.
According to the reports, Vodafone has been facing the worst quarterly loss in India’s corporate history. The company is facing a $4 Billion demand from India to cover the past dues. Vodafone Idea Ltd. took a one-time charge that led to a net loss of 509 billion rupees in three months.
The company was formed by a merger of the British firm’s local unit with billionaire Kumar Mangalam Birla’s Idea cellular Ltd. It is the nation’s second-largest phone operator which has not seen any profit since 2017.
Vodafone Idea representative said:
“The company’s ability to continue as going concern is dependent on obtaining the reliefs from the government. It is also in active discussions with the government seeking financial relief.”
The company is saddled with $14 billion of net debt and is fighting for its survival. India’s top court has ordered to pay additional fees which were due from prior years.
Talking about the losses, Vodafone Chief Executive Officer, Nick Read said:
“The situation was “critical” and unless India eases off on its demands, the venture may be headed for liquidation.”
Reason for the loss
With a billion mobile subscribers, India is one of the world’s biggest telecoms market. But even after all this, a number of telecom companies have been facing a loss.
The first reason is that for many years while the prices of telephone calls fell, data prices continued to remain high. Amidst this, Reliance Jio entered the market and things changed entirely.
In order to compete with the schemes and challenges given by Reliance Jio, many companies decreased their prices. This resulted in India ending up with the cheapest mobile data in the world.
But there were side-effects to this decision. This put massive pressure on the players already in the market. In the race of matching with Reliance Jio, the other companies ended up with too little profit or making losses.
The second reason is the battle over adjusted gross revenue. This means a certain proportion of revenues earned by the telecom companies need to be shared with the government.
The government and the telecom companies have always been on a disagreement regarding the revenue terms. But recently, the Supreme Court ruled in favor of the government. Now the telecom companies have to pay the authorities 900bn rupees. Vodafone India’s share is 390bn rupees.
These new changes increased the losses.
Telecom-major Bharti Airtel also posted a loss of Rs. 23,044 Crore for the quarter ended September 30, because of Rs. 28,450 provisions towards adjusted gross revenue.
Vodafone Idea’s revenue from operations became more than halved to Rs 10,844 crore from Rs 22,114 crore.
Is Vodafone Exiting India?
After facing heavy losses, the question which every telecom company is thinking about is where will all this money come from?
Vodafone’s CEO Nick Read said:
“Financially there’s been a heavy burden through unsupportive regulation, excessive taxes and, on top of that, we got the negative Supreme Court decision.”
The company was planning to leave India after the negative decision from the Supreme Court. But later, they apologized to the government and said that the company had no plans to exit India.
India’s GDP is already taking continuous dips in the low waters. In such a backdrop, if a telecom giant like Vodafone talks about leaving the market, it underlines the grim reality of India’s corporate world.
The government needs to understand the gravity of the situation and look beyond the retrospective tax issue that is going on with Vodafone. This exit won’t just affect the telecom sector but will also make other investors think twice before entering India.