Wednesday, 11 December 2019

Vodafone CEO: India must deliver significant relief package or risk losing Vodafone Idea

By Chris Kelly, Total Telecom
Tuesday 12 November 19

As Vodafone's Indian Joint Venture struggles with the country's brutal market conditions, Group CEO, Nick Read, confirms that Vodafone Group will not be putting any additional equity into the venture

Vodafone Group's CEO, Nick Read, has said that the Indian government must come up with a significant relief package to assist the troubled Vodafone Idea joint venture, or risk the telco going out of business altogether. Speaking at the company's six monthly results briefing in London on Tuesday, Read said that the Indian government now realised the scale of the problem facing telcos in the country. Despite having access to a market of over 1 billion subscribers, Indian telcos are being forced to trade on wafer thin margins.   "We've invested $20 billion in India, including our initial stake that we paid to get into the country &ndash…

Vodafone Group's CEO, Nick Read, has said that the Indian government must come up with a significant relief package to assist the troubled Vodafone Idea joint venture, or risk the telco going out of business altogether.

Speaking at the company's six monthly results briefing in London on Tuesday, Read said that the Indian government now realised the scale of the problem facing telcos in the country. Despite having access to a market of over 1 billion subscribers, Indian telcos are being forced to trade on wafer thin margins.  

"We've invested $20 billion in India, including our initial stake that we paid to get into the country – so this includes everything we did to get to 100% ownership in India before we did the merger with Idea Cellular," said Read.  

Last month, the Indian Supreme Court ruled against India's telcos, in a landmark decision over how they calculate their Adjusted Gross Revenues (AGR) – a metric used to calculate dues paid for spectrum. The ruling left the country's telcos facing a $13 billion bill at a time when they can least afford it. Vodafone Idea's share of the bill comes in at a whopping $4 billion.

"I think that the government has now acknowledged the criticality of the situation in India, as a result of the Supreme Court's decision on the AGR case, and also including the financial stress on the sector prior to the case. They have understood the criticality of the situation. They have understood the urgency for action that is required.

"When I met with them a month ago, we had extensive discussions with the government and it is clear that they are not looking for a monopoly situation. They [the government] want a vibrant telecoms sector and therefore they have formed a committee of secretaries to look at what a remedy package might look like," he explained.

 

Vodafone's three-point wish-list for India

Read outlined three distinct points that must appear in the government's relief package, in order for Vodafone Idea to continue to do business in the country.  

"They [the government] have heard the urgency and they have listened to the three things that the industry is asking for. For the avoidance of doubt, those three things are:

"Firstly, a two year moratorium on spectrum payments. All we are really saying is that we want to pay for the spectrum over the full life of the licence (20 years). Currently we pay over an 18-year term. We are asking for them to give us a two-year moratorium to allow us to harmonise the payments. That will give us breathing space in terms of cash coming out of the business.

"Secondly, lower the licence fees and taxes being born by the sector. These have just increased and increased and increased and we have got to an unsustainable position.

"The third thing, regarding the AGR case, we are asking for the waiving of fees and penalties and to be able to spread the principle over a ten year period. By the way, its worth noting to give you an order of the magnitude involved – when the ruling came out, [Indian telcos] were ordered to pay $13 billion. That number will go up when its finalised but the initial figure is $13 billion. Of that amount, $4 billion was Vodafone Idea. Of that $4 billion, only $900 million was the principle – the rest is interest and penalties. That's a huge amount. What we are saying to the government is that we have over 300 million customers that rely on our service. We have invested substantially in this country but we have reached a point where we can not put any new equity from Vodafone Group into the country. We now need to see the government come forward with a relief package to provide confidence that they want a vibrant and competitive environment," he explained.  

"In a couple of weeks we will hear what the recommendations are from the group of secretaries. Let's wait and see what they are."

 

The situation is critical

When asked what would happen if the Indian government did not deliver a significant relief package, Read was unequivocal in his response:

"I'm very clear about what the requirements are for us to be a sustainable business going forward. So, when I use the word critical, I mean critical!"

"To be very clear: if you don't get the remedies that you are looking for and the situation is critical in terms of [existing as] a going concern. What you need to think about is that this is a joint venture in India and the remedy package is critical for the sustainability of the business going forward. We are not going to put more equity into it from the Group. Our view is: India its time for you to decide whether you really do want a vibrant and competitive market place," he said.  

"If you are not a going-concern, then you are moving into a liquidation type scenario. You can't get any clearer than that. I think the government fully understands that," he concluded.   

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