By Gagandeep Kaur
Vodafone has hardly had a good run in the country. From the start of its 2007 trip to India until its battle with the Essar Group to the ongoing retrospective tax dispute with the Indian government, the company has experienced turbulent times in India.
Even so, the recent Adjusted Gross Income (AGR) judgment threatens its very survival in the country. Before we get into how the AGR threat is different from the company’s previous challenges, let’s briefly take a look at how the turmoil defined Vodafone’s presence in India.
The historical point of view
Starting with just 28 million subscribers in 16 circles as of May 2007, Vodafone (now part of Vodafone Idea) has over 250 million subscribers with a presence in all circles (service areas).
Since beginning its stay in India in 2007 by acquiring a 67% stake from Hutchison, Vodafone has moved from one partner to another to continue its operations. She was involved in a $ 2.5 billion tax dispute with the Indian Department of Income Tax over her purchase of Hutchison Essar Telecom services in 2007. The main issue was that the Indian government believed the transaction involved the purchase of assets of an Indian company and, therefore, taxable in India.
Vodafone’s subsidiary in the Netherlands had acquired Hutchison Telecommunication’s stake in Hutchison Essar for $ 11.2 billion in a transaction in the Cayman Islands. The issue is not yet resolved even though the Supreme Court has ruled in favor of Vodafone.
The Indian government retroactively changed the law and demanded INR 22,100 crore in back taxes. India’s appeal in this regard was dismissed by an international arbitration tribunal last year. The hearing, in this case, is expected to begin in Singapore in September this year.
The company later formed an alliance with the former Idea Cellular to combat the competitive intensity triggered by Reliance Jio’s entry from Mukesh Ambani in 2016. Vodafone Group holds a 44% stake, while ABG owns a 26% stake in Vodafone Idea. The partnership also created the country’s largest service provider. But clearly, that was not enough.
From “happy to help” to needing help
Even as the merged entity integrated its network and stabilized its operations, the Adjusted Gross Income (AGR) judgment dealt another blow. The main problem is that the government believes that revenues from services other than telecommunications are included in the AGR.
The company’s current problem with Adjusted Gross Income (AGR) coupled with massive INR 1.8 trillion debt means Vodafone Idea is in desperate need of a capital injection. It has to pay INR 225 billion between December 2021 and March 2022. However, it only has INR 350 million in cash reserves. Aditya Birla Group (ABG) and Vodafone Group have decided to stop injecting capital into the joint venture. Worse, it is unable to attract investment due to the uncertainties surrounding the telecoms sector.
ET Telecom’s report says ABG is ready to sell its stake in Vodafone Idea to a private or public entity to prevent its collapse.
“One of the main reasons why Vodafone Idea is unable to attract investment is the disagreement with investors over the valuation of the company. Second, there are many uncertainties about the way forward for the company. telecommunications sector, which prevents investors from investing, “said a senior executive. industry professional who participates in discussions with investors.
The next few months promise to be incredibly tough on the telecommunications company, unless an investor in shiny armor appears to save it. “Whether Vodafone Idea merges with the state-owned BSNL or is forced to reduce the number of circles in which it operates, it is unlikely to survive in its current form. In addition, massive debt and reduced cash flow decrease its ability to invest. in upgrading and expanding the network and that means the company will have a hard time competing, ”says Ashwinder Sethi, director at Analysys Mason.
Why India Doesn’t Work for Foreign Telecom Operators
Vodafone is not the only foreign telephone company to have faced rough waters in India. Several global telecom operators, including Etisalat, Maxis and Telenor, have tried their luck in India, but the result is almost always the same. Ultimately, they are forced to leave the country.
With over a billion people, it’s not hard to see why India relies on service providers. In addition, a significant percentage of this population is not yet connected, which is only true in a few geographic areas. In addition, India also boasts of a technically skilled labor force that is good value for money, thus adding to the attractiveness of the Indian market. Not to mention that the Indian government is looking for foreign investment.
However, just like the Indian summer, the competitive intensity in the country can be relentless. What works in other markets is unlikely to work here due to the extremely low ARPU and massive scale of operations.
Another factor that is an eye opener for most foreign telecom operators is the bureaucratic maze and changing rules and regulations.
“Expats of service providers are taken by surprise by changing regulations, most of which are politically motivated. Even with the help of Indian experts, they don’t know how things work in India. This is one of the key factors why foreign telecom operators are unable to succeed in the Indian market, ”said an industry veteran who wished to remain anonymous.
Especially painful is the release of Vodafone from India (if it happens). While international telecom operators, like Etisalat, have never been able to establish themselves as pan-Indian service providers, Vodafone is part of the fabric here, with over 250 million subscribers. Over the years, Indians have been won over by Vodafone’s popular advertising campaigns, especially those featuring ZooZoos and the Cheeka pug, which have become a part of everyday conversations.
Even with all the ups and downs over the past few years, Vodafone is known to have a high percentage of high ARPU customers. Vodafone Idea also has a significant number of corporate clients in India. In addition, it continues to add new subscribers even when its survival is at stake. In addition to subscribers, its assets include a data center, spectrum and fiber.
The company is able to work in different cultures in several geographical areas. It is present in more than 21 countries in Asia, the Middle East and Europe. In recent years, Vodafone has only withdrawn from Egypt.
The current situation of Vodafone is sure to diminish India’s attractiveness to attract foreign investment. The presence of Vodafone Idea is also important to ensure that the Indian telecommunications market does not fall into a duopoly that limits competition and innovation. A vibrant communications industry is vital to the Indian government’s Digital India vision. As the group faces uncertainty in India, industry and government stakeholders should strive for a win-win solution.
(Gagandeep Kaur is a freelance telecom journalist based in New Delhi)