Vodafone Idea threatens closure over $13 billion fine

Vodafone Idea has stated it will shut-down its business unless relief is offered by the Indian Government for the $13 billion demands which have been directed at the firm.

Speaking at a conference in New Delhi, Vodafone Idea Chairman Kumar Mangalam Birla has threatened to compromise the competitive landscape in India even further in light of the monstrous spectrum bills which have been handed to the telcos. This is an argument which has been on-going for more than a decade, though the penalties and interest fees may well cripple Vodafone Idea.

“If we are not getting anything then I think it is end of story for Vodafone Idea,” said Birla. “It does not make sense to put good money after bad. That would be end of story for us. We will shut shop.”

This dramatic statement from the Chairman specifically links back to a dispute concerning spectrum licence fee payments, as well as additional interest and penalties. Ultimately, the telcos could be liable for an eye-watering 1.47 Indian rupees, roughly $21 billion. Looking at the bigger picture, this is further evidence the Indian Government and the Telecom Regulatory Authority of India (TRAI) is unable to manage the market effectively.

Looking at the fine, the Indian Government has stated the licence for spectrum requires the telcos to had over a proportion of revenues during the period which the licence has been held. The debate is over how much is owed, as the telcos seem to believe it should only be revenue associated with the spectrum, while the Government does not.

The saga itself was elevated to the High Court, with the Judge ruling in favour of the Government. With the monstrous bill standing, both Vodafone Idea and Bharti Airtel have petitioned for relief. Reliance Jio is also facing the same fees, interest and penalties, but as it has only been operational since December 2016, the financial burden is significantly less.

For Vodafone Idea, despite the on-going potential for profits in India, it appears the financial stress is simply getting too much. The shifting dynamics of competition in India have already forced a merger between Vodafone India and Idea Cellular, and it will get to a point where the out-going cash makes it in tolerable to continue operating in the country. It seems the point of no-return is looming large on the horizon.

From a revenue perspective, you can see this is a market which is in trouble. There is significant potential for upshot as digital takes hold, though the telcos will have to weather the storm.

  Industry Revenue (Rupee, Billions)
Q1 2019 390
Q4 2018 432
Q3 2018 426
Q2 2018 469
Q1 2018 440
Q4 2017 435
Q3 2017 466
Q2 2017 493
Q1 2017 505

With tariffs set to increase between 15-40% over the coming months, the overall revenues in the Indian telecoms market will increase, though it might be a matter of too little, too late for Vodafone Idea. As you can see from the quarterly revenues, a significant chunk of cash has been taken out of the market through Reliance Jio’s aggressive pricing strategy, forcing consolidation and crippling competition.

Taking a view of the bigger picture, this is another example of the Indian authorities ineffectively managing the telecoms market. The Government and regulator have been attempting to drive India forward into the digital economy, but the aggressive pursuit and favour granted to market disruptor Reliance Jio is crippling the traditional telcos.

With Vodafone India and Idea Cellular merging, Telenor and Reliance Communications exiting, Tata being acquired by Bharti Airtel, the state-owned telcos only surviving because of Government hand-outs and Bharti facing similar financial burdens, it seems only Reliance Jio is in a healthy position. In pursuit of digital glories, authorities have placed India on a fast-track to a monopolised telecoms market, which is not healthy for anyone.

Vodafone and Bharti set to raise prices help pay government bill

Beleaguered Indian operators Vodafone Idea and Bharti Airtel have indicated they will need to start charging their customers more.

Neither of them explicitly blamed the massive government bill they’ve been asked to pay for the unspecified price hike, but the fact that it has happened so soon after they got the bill and that they made the announcements almost simultaneously means it’s very unlikely to be a coincidence. The increase will kick in at the start of next month.

“To ensure that its customers continue to enjoy world class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective December 1, 2019,” said Vodafone Idea in a statement to Business Standard. “The acute financial stress in the telecom sector has been acknowledged by all stakeholders and a high level Committee of Secretaries headed by the Cabinet Secretary is looking into providing appropriate relief.”

“The telecom sector is highly capital intensive with fast changing technology cycles that require continuing investments,” said Bharti Airtel in a statement to the Economic Times. “It is, therefore, extremely important that the industry remains viable to support the vision of Digital India. Accordingly, Airtel will appropriately increase price offerings in the month beginning December.”

Their nemesis Reliance Jio announced a month ago that it was going to start charging for stuff it had previously given away for free, which led to some muttering. Now that its competitors are also raising their prices it’s clear that the government cash grab will ultimately cost regular people. Vodafone and Bharti will be hoping their customers don’t punish them too much for this move, but it will surely lead to them losing some more business to Jio.

The Indian telecoms crisis shows no sign of abating

The Indian government is showing no sign of backing down on its demands for massive payments from Bharti and Vodafone.

Bharti Airtel took an exceptional charge of around $4 billion on its latest quarterlies, to account for most of the bill presented to it by the Indian government for historical license fees. This follows a letter sent by the Indian Department of Telecoms demanding they pay up on timely fashion.

“On the AGR verdict of the Hon’ble Supreme Court, we continue to engage with the government and are evaluating various options available to us,” said Bharti Airtel boss Gopal Vittal in his comments on the quarterlies. “We are hopeful that the government will take a considerate view in this matter given the fragile state of the industry.” The charge indicates they’re not that hopeful.

Meanwhile Vodafone CEO Nick Read had a bit of a moan about the situation during his own earnings call earlier this week. This doesn’t seem to have gone down too well back in India, with government officials expressing their displeasure to the Indian media, according to the Standard. Read seems to have slightly retreated from his previous position, but not much. His underlying point that there is rapidly diminishing incentive to put up with all this aggro remains.

It looks like the best Voda and Bharti can hope for now is a bit of relief on the government bill, but they’re still going to have to shell out a lot of rupees. What this will mean for the future of the Indian telecoms market is unclear. Presumably Relaince Jio will be in a stronger position than ever to differentiate itself through network investment, which will surely have a negative effect on competition.

Jio readies itself for fixed broadband assault

Reliance Jio is set to pile more misery on Bharti Airtel with the launch of a low-cost fixed broadband offering.

It’s no secret Reliance Jio is eyeing up the fixed broadband market, though Bharti Airtel executives thought they might have had a bit more time. According to the Economic Times, Reliance Jio has bought controlling stakes in Den Networks and Hathway Cable, giving it a ‘headstart’ on the potentially lucrative segment.

The worry regarding the fixed broadband market is the opportunity. This might sound like a daft thing to say, but the opportunity has been staring incumbents in the face for years. None have actually done anything about it. Like the mobile market prior to the chaos caused by Reliance Jio, it is slumbering due to inaction, but that might all be about to change. If Reliance Jio can carry the momentum from the mobile and value services segments into the broadband space as well, the misery could continue for market incumbents.

According to the lastest figures from the Telecom Regulatory Authority of India (TRAI),while mobile subscription is surging (and with still a lot of room for growth), the fixed broadband market is stagnent in most regions and actually shrinking in others. There are currently 22.2 million broadband subscriptions in the country, compared to roughly 250 million households. Just to put things in perspective, broadband would have to grow 50-fold to even come close to the same scale as mobile.

With the acquisitions of Den Networks and Hathway Cable, Reliance Jio has a starting point. It can begin to rollout its own branded service and undercutting the market in the same way it did for mobile. Over the coming months, expect to see the insurgent telco aggresively spending to expand this infrastructure. Details are thin on the ground at the moment, though the intentions were outlined in May at Light Reading Big Communications Event by Mathew Oommen, President of Reliance Jio Infocomm. Home and enterprise penetration is incredibly low; there are billions to be made for those who are willing to spend to capitalise on the opportunity.

For the traditional telcos in the market, inaction might prove to be the downfall once again. Reliance Jio has destroyed profits for challengers in mobile and the same gameplan could work for fixed broadband. With such low penetration, the opportunity has always been there, but if you are happy with the status quo you are nothing more than a sitting duck. The likes of Bharti Airtel have no-one but itself to blame for missing out on the potential cash bonanza.

One of the most tired phrases in the technology world is disrupt or be disrupted. It’s a cliche which people dread hearing, but it is incredibly true here.