As Vodafone Idea approaches insolvency, the question is whether the government should intervene to save the company. Will an emergency rescue be enough to preserve the corporation from an astronomical debt of Rs 1.8 lakh crore, monthly business losses totalling thousands of billions of rupees, and the exodus of high-paying clients, even if it chose to do so?
What is the case for a government bailout?
The fall of Vodafone Idea will have the greatest impact on the exchequer, especially given the pitiful revenues obtained following the bankruptcy of Anil Ambani's Reliance Communications and Aircel.
Deferred spectrum obligation of Rs 96,300 crore, AGR liability (after SC verdict) of Rs 61,000 crore, and a major percentage of PSU bank liabilities from total borrowings/loans of Rs 23,100 crore are among the company's debts to the government. When you factor in the potential loss of interest on these payments, the total government payment setback might reach Rs 2 lakh crore.
But what has brought the company to such dire straits?
If the government does offer another revitalisation plan, it will be the third since 2017. Mukesh Ambani's aggressive foray into the mobile market in September of 2016, making voice charges free for consumers and lowering data pricing dramatically, took a toll on the company's financials.
This impacted incumbents Bharti Airtel, Vodafone India, and Idea Cellular (the last two combined as a countermeasure in 2018), as voice accounted for approximately 75 percent of their sales before Jio made it free.
While 4G-only Jio saw a business case for increasing data and content consumption, others' business models continued to revolve around squeezing consumers on voice and data tariffs, oblivious to the larger trend toward data, streaming, and OTT services that were playing out across most of the developed world.
Why should the Indian consumer be worried?
Following their merger, Vodafone Idea went from being India's largest telecom operator with nearly 40 crore customers to being the third-largest, with a client base of 26.8 crore. Customers will scurry to migrate to Jio, Airtel, or BSNL/MTNL if it files for bankruptcy, creating a near-panic situation. The unexpected influx of such a big number of users, on the other hand, will undoubtedly strain the already-strained spectrum base, resulting in a drop in service quality.
With less competition, businesses will feel more at ease and have more freedom to hike tariffs. Indians are among the greatest data consumers in the world, consuming roughly 14GB per month per consumer, signalling a near-digital revolution. This increase could be slowed by higher data prices.
Most major markets, such as the United States, China, and Korea, have more than two competitors, which is necessary for a healthy competitive environment as well as the managing of massive user bases and costly technology updates.
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