Kolkata: The telecom tribunal on Tuesday refused to stay the sector regulator’s July 11 order blocking Vodafone Idea’s RedX premium tariff plan, denying relief on this score to the struggling telecom carrier, sources said.
The joint venture between UK’s Vodafone Group and India’s Aditya Birla Group had on Monday moved the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) challenging a regulatory order blocking VIL’s RedX premium tariff plan that offers faster data speeds and priority services to customers.
The TDSAT has issued a notice to the Telecom Regulatory Authority of India (Trai) and the hearing will continue on July 16. Vodafone Idea shares were down nearly 3% at Rs 9.47 in Tuesday early afternoon trade on BSE.
Vodafone Idea could not immediately be reached for comments.
The company had moved TDSAT as it was unhappy over the hasty manner in which Trai had blocked its eight-month old premium RedX tariff plan last weekend, without seeking its response on a matter that could inconvenience many RedX customers.
Vodafone Idea: Everything to know about India’s ailing private telco
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Vodafone and Idea before their amalgamation
UK’s Vodafone Group Plc. entered India in 2007 after it bought a majority stake in Hutchison Essar, erstwhile Hutchison Max Telecom Ltd (HMTL). While Idea was incorporated in the year 1995 with the name Birla Communications Ltd. The company came to be named as Idea Cellular Ltd in the year 2002. Subsequently in 2006 it became a part of the Aditya Birla Group.
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Industry structure prior to Reliance Jio’s entry
Prior to Jio’s entry into the market until 2016, India had more than 10 wireless providers. However, Jio’s disruption resulted in industry consolidation which eventually shrunk into three major private players with Jio, Bharti Airtel and Vodafone Idea (after Vodafone India and Idea merged amid brutal price competition) and two state run operators BSNL and MTNL. Operators like Anil Ambani’s Reliance Communications, Tata Teleservices, Aircel, Telenor, Sistema and Videocon exited the industry over the last four years; some went bankrupt and rest merged or taken over by other entities.
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Vodafone and Idea merged to bat against Jio’s dominance
Jio with its dirt cheap tariff plans single handedly compelled the incumbents to cut down their data and call tariff rates in order to survive the onslaught. This disruption initiated the gradual revenue erosion and falling subscriber counts of the rival telcos with small players completely thrown out of the market. The merger of the two giants was seen as a strategic response to withstand the headwinds the new entrant had created. It was completed on 31 August 2018 and the combined entity became the largest telecom company in India by subscribers and revenue.
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Number crunch post Jio’s entry in 2016
The trail of dwindling revenues and losses had already started after 2016 for the surviving players post Mukesh Ambani owned Jio’s entry.
Vodafone Idea Ltd (Idea): In its 2017-18 annual report, the telco reported a decline of 20.2% in its total revenues over the previous year (FY17) on a consolidated basis. The EBITDA figure reflected a decrease of 39.3% year-on-year and the consolidated net loss stood at Rs 41,682 million vis-à-vis Rs 3,997 million for the previous year (FY17).
Airtel: During the same period (FY 17-18), Airtel recorded a 12.3% fall in its revenues over the last year (FY17) while net profit for the year declined by 48.5% year-on-year. The grim position that these numbers indicated had ostensibly been due to a combination of factors like TRAI’s slashing of IUC rates in September 2017, high spectrum costs in addition to the Jio effect. Further, falling subscriber counts continued as customers ported to Jio’s network which offered almost zero payment services. Of private operators, Vodafone Idea has seen the biggest subscribers’ loss over the past year. The telco has lost almost 60 million subscribers between September 2018 and August 2019 while Airtel lost just 15.77 million with Jio gaining nearly 96 million in the same period.
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Vodafone Idea (VIL)’s current dire state
The recent Supreme Court order that ruled in favour of DoT on its interpretation of AGR asking the industry to pay dues as high as Rs 1.47 lakh cr with VIL to pay an estimated over Rs 53,000 crore which could deal the final knockout blow to the already battered telco. The company having clocked consecutive losses in all quarters since its merger announcement in 2017 reported the highest ever corporate loss in the country at Rs 50,922 cr in Q2 of the current financial year which is over 10 times higher than that of the previous quarter. The mammoth amount came as a result of making room for AGR provisioning of Rs 25,680 cr in relation to the additional statutory dues following the apex court ‘s order.
Its rival Airtel too listed massive net losses of Rs 23,045 cr in the same quarter- highest ever during its entire tenure on the back of provisioning for its dues in line with Supreme Court’s order. It made an overall provisioning of Rs28,450 crore.Mukesh Ambani-led Jio, which stands better than the incumbents, posted net profits of Rs 990 cr in the September quarter.
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What does the telco’s financial statements indicate?
The telco sitting on a debt pile of Rs 1.02 lakh cr with its reserves and surplus account completely eroded by a net loss of Rs 55,795.8 cr in the first half of FY20 is in a precarious state. Its reserve account stands at a negative Rs 4,666.8 cr as on September 2019 dissolved by almost 90% as it stood at Rs 50,899.2 cr as on March 2019. As a result, the company’s total equity (reserves, surplus and equity capital) has shrunk to Rs 24,068 cr compared to Rs 59,634.8 cr in the previous fiscal- almost 60% value erosion. In Q2, the company’s loss is roughly five times its consolidated revenue from operations, which fell to ₹10,844 cr- a 3.8% decline from the previous quarter. Additionally, its net debt to EBITDA ratio is at 31x, and accounting for dues being funded via debt is expected to raise it to 38x. This according to experts could cause a credit rating downgrade, which could hit the company’s ability to raise additional debt. However, Bharti Airtel reported improvement in its operations and operating profit with a consolidated revenue of Rs 21,131 crore for the quarter- 2% QoQ increase. Analysts thus contend that Airtel has escaped a bankruptcy situation for now and stands in a better position to pay dues than Vodafone Idea.
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No relief from the top leadership
With both Bharti Airtel and Vodafone Idea having expressed doubts over their ability to continue as ‘going concerns’ unless the government lends a helping hand, the latter going in for liquidation could be a possibility .Naveen Kulkarni, research head at Reliance Securities said he doesn’t see VIL surviving if no relief is forthcoming from the government. Apprehensions over the telco’s future come against the backdrop of Vodafone Group’s global CEO Nick Read and Aditya Birla Group’s indication that they won’t infuse any further equity into VIL with the UK parent having written down the value of its joint venture with the latter to zero
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CoS set up to provide relief disbanded
The Cabinet headed by the Prime Minister on November 20 gave some respite to the beleaguered sector as it decided to defer receipts of spectrum auction instalments due from the operators for the years 2020-21 and 2021-2022. But the CoS that had been set up to devise a relief plan for the sector has been disbanded, according to a government official, hinting at no further aid coming for the industry. The moratorium as contended by industry analysts will bring immediate relief to the near term liquidity woes of the telcos. However the move will not be improving VIL’s balance sheet leverage which stood at 20x (net-debt-to-EBITDA) as of Sept 2019, according to Goldman Sachs.The two-year moratorium can potentially save VIL and Airtel about Rs 23,400 cr and Rs14,200 respectively over this period, said the firm. Fitch, however, believes that the decision by all three private companies to raise tariffs from December 2019 and the recent deferment relief on payment of spectrum dues are positive for the industry but are unlikely to be sufficient to offset the impact of the AGR judgement for the incumbents.
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Vodafone Idea striving to survive: SC petition, tariff hikes, tax refunds
VIL in view of its tight situation has taken a number of measures including seeking about Rs 7,000 crore in tax refunds for past years from IT dept, announcing a price tariff hike from December 2019 and filing review petition in SC for a review of payouts in penalties and interest on dues. VIL and Airtel announced that they would increase tariffs in December, the first price hike in more than three years in a bid to increase their revenue and operating income. Jio and state operator BSNL also followed suit as they announced hiking tariffs from December on similar lines. VIL in its petition on November 22, along with a review of the penalty amount also sought to have a relook at the amounts attributed to notional revenue.Bharti Airtel and Tata Teleservices also filed review petitions separately in the SC on the same day. Additionally, MD and CEO, Ravinder Takkar has said that the telco apart from seeking relief from the state is also exploring ways to monetise its data centre assets and 1,60,000 kms of intra/inter-city fibre to gain financial flexibility amid the delay in its Indus-Bharti Infratel merger closure, which has also held up monetisation of VIL’s 11.15% stake in Indus.
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Impact of Vodafone’s fallout on other sectors
The operator’s fallout is likely to be significant on the saddled banking sector if the telco ends up in NCLT as it holds significant exposure to the player as well as the sector. As per RBI data, banks have a Rs 1.15 lakh crore exposure to telecommunications as of September 2019, up 25% from Rs 91,946 crore a year ago. VIL’s top management has cautioned lenders that timely repayments may not be possible without the government’s intervention in case DoT decides to invoke bank guarantees issued by lenders to recover dues in the next three months. The lender suit which includes state run majors like PNB and BoB is led by State Bank of India (SBI) with an exposure of Rs 11,200 crore, according to the brokerage firm Jefferies. Among private sector banks, IndusInd, ICICI and HDFC are running exposures of Rs 3,000 cr, Rs 1,700 cr and Rs 500 crore, respectively. In addition to banks, some debt schemes are also running high risks with an estimated Rs 2,023 crore worth of the telco’s debt.