The Indian telecommunication is now a capacious term bracing its ties in each and every expanse of not only india but in every domain of the world. India is the world’s second-largest telecommunications market with a subscriber base of 1.16 billion and is the venture of investment for the leading telecommunication companies of the world leading to the emergence of best telecom companies in the world. The department of telecommunications has tried to cater all the needs of the telecom sector in order to make India a “hub of telecommunication”. Earlier telecommunication was mere a monopoly in india but with the ease of the restrictions in telecom sector it turned into oligopoly with three dominant market players namely, Reliance Jio, Bharti airtel, and Vodfone-Idea. Telecom is the second highest earner of revenue for the government of India after income tax.
By 2010 various telecom companies fabricated a sturdy base in the Indian telecommunication market. One of them was idea cellular which was earlier known as Birla Communications Limited but thereafter, substituted with idea cellular followed by mergers and joint ventures with Grasim industries , AT&T corporation and tata group. After its formation idea cellular very splendidly covered the Indian market catering to the needs of the customers and launched its IPO in 2008. In order to expand its operations and lead to a more profitable venture it merged idea cellular with Vodafone india on 31 august 2018 with extensive coverage of its advertisements. Dismally, instead of its sublime advertisements and impelling offers it didn’t last long. Besides the support of the world’s leading telecom company AT&T corporation this merger (Vi) lead to an steady nemesis which turned it into a demolished venture.
This piece will try to unravel various questions that idea cellular instead of being india’s topmost telecom company until 2010 but what happened to it after this merger ? why it lead to an downfall ? Its causes, effects, role of government and finally the solution.
BRIEF ABOUT VI
Everything was going pretty well until the merger of Vodafone india and idea stepped into the Indian telecom market. As it is the very key principle of every business to earn profits in the long term the motive of the merger of vi was emerging as the leader of telecom services in india but situations turned contradictory. After its formation it emerged as one of the largest telecom company in India. But, as and when Reliance Jio came into the picture it gave a sturdy competition to vi. And thereafter, the losses of the company surged year by year. Vi recorded its highest loss of 73,131.50 cr. for the year ended march 2020. Now let’s peep into the picture of the catastrophe of vi. The company is having around 1.8 lakh crore rupees as on march 31, 2021 and that is for sure a huge amount including bank loans of 23,080 cr.,around 58,000 cr. As AGR and so on. The company witnessed the decline in its user base from 33 cr. To 27 cr. The composition of ownership of the group is as follows – 44.39% of Vodafone group, 27.66% of Aditya birla group, Non institutions – 22.28%, In the form of IPO – 5.67%. The collusion of company started when it paid no heed to its enormously increasing debts.
In December 2019 Mr. kumar Mangalam birla one of the promoter- director of the company stated that if the government would not be helping the company to revive its operations then the company has to anyhow shut its operations and might file for bankruptcy under IBC, 2016 .He further offered the government his 27% stake in the company in order to revive the company from the nemesis and for continuing its operations. The company along with Bharti airtel and tata tele services filed a review petition in the supreme court for the miscalculation of AGR dues anticipating a relief measure for the same. However, the court rejected their plea leading to the plunging of the share prices of the telecom companies.
The ramifications of the fall in the share prices of vi were quite awful as to the expectations of the shareholders. The foreign investors started to retract their investments from the company thereby resulting into the decline of foreign institutional investors. After witnessing the plunging of the situation of the company the domestic institutional investors retracted their investments. On the other hand, paradoxical retaliation was given by the retail investors. The retail investors considered the nemesis in the share price of the company as an opportunity to invest and grow in long run by entrusting their faith in the goodwill of the company without analysing its fundamentals. As a result, the retail holding increased from 5.6% to 22.28%.
WHY RECTITUDE ?
Mr. Kumar Mangalam birla is ready to give his stake in the company to the government but, how is it possible that such a shrewd businessman is ready to accord his stake to the government, as an intelligent investor if we analyse in depth it is quite coherent that Birla’s three other listed companies that are ultratech cement, hindalco industries and Grasim industries made “big bucks” and recorded excellent performances during relevant financial years. These companies accorded approximately 15,000 cr. Profits and now it is quite logical that if a group is making such big bucks from its companies then why it will continue with a company which is now a “menace” for them. From the various statements of Mr.Birla it is crystal clear that he wants to avoid risk, guard his other ventures from the “vi nemesis” and is all set to exit from the company without any fresh aspiration for revival of the company.
Next is why did airtel being the toughest competition of Vodafone-idea braced and stood with it? NO, means it doesn’t sound ordinary that one of your rival is standing and supporting you at your tough luck. And it is a manifestation that no one works without introversion for sure same goes with Bharti airtel. Airtel was bracing Vodafone-idea at every juncture of its afflictions. But do we know why? The reason is quite obvious that in the light of succouring airtel is serving its own interests. There are instances proving the same. Firstly, In the plea to the supreme court for the review of the adjusted gross revenue ( AGR ) it stood with vi as in case the plea is accepted by the court and if the court grants some reliefs for the same then reduction in AGR dues will be advantageous for airtel as well, thereby resulting in the reduction of its liabilities. Furthermore, Vodafone-idea is a major patron of Indus towers which is one of the subsidiary of bharti airtel. Thereby, the catastrophic move of Vodafone-idea will have a noxious impact on the indus towers resulting in losing its major customer.
SALVAGE OF VI
The solution of this descend is that either any sound enterprise like Reliance Jio should acquire the venture or the government should step into the matter and The Department of telecommunications to provide various exemptions and reliefs or the centre can acquire, merge the venture with its government undertakings in order to continue the operations of the company, avert its shut down and protect the interests of the shareholders.. But analytically, option of the government to acquire or merge is not quite pertinent as it is itself trying to recuperate from its loss making ventures ( BSNL ,MTNL) so it might not be in a position to acquire such a huge loss making venture. Consequently, the faultless option would be that if some putative company with a profitable bent takes over this disruptive venture. The government on the other hand is still all in all endeavouring to solve the problems with the Indian telecom industry, is trying to ease the restrictions to make it feasible for the foreign investors to invest in the Indian telecom industry. Otherwise, there is an anticipation as per the reports that the company may file for bankruptcy under Insolvency and bankruptcy code, 2016 if the state of affairs turn unfeasible. And if the company goes bankrupt then it will definitely lose the trust and confidence of the foreign investors to invest in Indian telecom sector and that will for sure halt the development of the Indian telecommunication sector.
SOURCE – Economic times, Moneycontrol and The financial express.