Vodafone Idea exit is bad news for telecom business, will affect FDI too

The Supreme Court recently pulled up mobile service operators and the department of telecommunications (DoT) for failing to comply with its verdict, which mandated telecom companies to pay the adjusted gross revenue (AGR) dues of an estimated Rs 1.47 lakh crore to the DoT by January 23.

Vodafone Idea, Bharti Airtel and Tata Teleservices last month filed modification pleas seeking more time to pay AGR-related dues. The DoT had on January 23 asked its officers not to take coercive action against telcos for non-payment of dues.

However, after the SC direction, it has withdrawn from its position so as to not invite contempt of court. Airtel responded to DoT order by offering to pay Rs 10,000 crore by February 20 and the remaining before March 17.

Airtel owes nearly Rs 35,586 crore, including licence fee and spectrum usage charge, to the government. There was no word from Vodafone Idea, whose chairman Kumar Mangalam Birla had last month stated that the company will fold if it is forced to make payment of over Rs 53,000 crore dues. Towards the beginning of 2000’s India had around 15 telecom operators, all but five of whom went out of business when the SC cancelled 2G licences. Out of the five which survived, three are in the ICU today. If Vodafone Idea is forced to cough up the money, they will have to shut shop. BSNL and MTNL are also in precarious health.

Thus the SC’s direction inadvertently drives India’s telecom business - voice and data both - towards becoming a duopoly (Jio and Airtel) which is a dangerous thing for the over 400 million customers of the other three networks and the telecom business as a whole. Predatory pricing by Jio, which gained from the inevitable cost-benefit analysis that late entrants have with regard to access to modern technology at affordable prices, has already led to skewed competition.

The government can offer Vodafone Idea and the entities which have shut shop or are in the IBC resolution process, a scheme to pay the principal dues with the penalties and penal interest, etc. waived off.

That will be good for not just the country’s telecom sector. Vodafone is a global behemoth and if it exits business in India, it will have a direct bearing on foreign companies pondering over the idea to invest in India. If they see the Indian government and institutions not conducive for foreign investment, the country’s global image and ratings will take a direct hit. That may not just affect FDI but also FII, given the dismal state of the Indian economy.

Also, Vodafone Idea’s exit will lead to 13,000 direct job losses. Many more thousands of indirect jobs will also be lost. The Indian economy is battling with its biggest unemployment crisis in 45 years. One understands that the government’s direct tax revenues are at its lowest in a decade. But to balance its books by not compromising on the Rs 1.47 lakh crore will be a penny-wise but pound-foolish move. One hopes the Centre sees the big picture and intervenes for the greater benefits in the long run.