Sunday, 27 September 2020

With vendors beginning to delay new orders, is Vodafone Idea out of time?

by Harry Baldock, Total Telecom
Tuesday 04 August 20

Without new equipment, Vodafone Idea will struggle to achieve the expansion necessary to survive

Reports from the Economic Times suggest that Vodafone Idea’s vendor partners, such as Nokia, Ericsson, Huawei, and ZTE, are delaying incoming equipment orders from the operator, with fears that the telco will not be able to pay up.   This could see the struggling Indian telco stuck in a vicious cycle of decline: without more equipment, Idea cannot expand to increase its revenue; without new revenue, the telco will not be able to provide assurances to vendors and purchase more equipment…

Reports from the Economic Times suggest that Vodafone Idea’s vendor partners, such as Nokia, Ericsson, Huawei, and ZTE, are delaying incoming equipment orders from the operator, with fears that the telco will not be able to pay up.

 

This could see the struggling Indian telco stuck in a vicious cycle of decline: without more equipment, Idea cannot expand to increase its revenue; without new revenue, the telco will not be able to provide assurances to vendors and purchase more equipment.

 

"This has been happening since the last six months or so. European vendors have taken a stand that they need some security against new orders. Chinese vendors that already had flexible payment terms may have also stopped taking new orders,” said an anonymous source speaking to the Economic Times.

 

Vendors are now seeking bank guarantees before they acquiesce to new equipment orders – a particularly tall order, since Idea recently told the Supreme Court that no bank would support them. 

 

Idea has been in the financial doldrums for some time now, struggling with net debt and the enormous adjusted gross revenue dues imposed on it by the government. Parent company Vodafone has repeatedly said that it will not infuse the floundering business with more cash and has instead threatened to allow it fall into bankruptcy. Vodafone Idea still owes the government around $6.74 billion in AGR dues and related fees.

 

In recent months, Vodafone Idea and Bharti Airtel have been arguing with the Supreme Court in an attempt to get the payment terms of their AGR dues reassessed and extended. Last month, the Supreme Court thoroughly quashed suggestions that the AGR debt could be recalculated, though it did not completely discard the notion of extending payment terms. If the Court does ultimately agree to a lengthier payment timeline, then this could go some way to softening the vendors’ views towards dealing with Idea.  

 

Without the support of major vendors, Idea could be forced to look to alternative solutions, with Open RAN vendors the natural choice. However, the ability for any of these companies to fill the gap left by their bigger competitors is questionable, especially in the short term.

 

In the meantime, Idea’s attempts to save money are becoming more and more apparent. Back in May, the company announced it would be reducing its telecom circles from 22 to 10 in an effort to consolidate. Now, reports are suggesting that around 1,500 staff members around India have been cut as a result – a significant percentage loss, since the company reportedly had only around 11,000 permanent staff prior to the reductions.

 

Sadly, it is not only Idea’s staff levels that are declining. Last month, it came to light that Idea had lost around 20 million subscribers to its competitors in the last two quarters. Without new investment or the Supreme Court significantly relenting, it appears that Idea will continue to struggle to compete.

 

Not for the first time this year, the threat of an Indian duopoly does not seem far fetched. 

 

Also in the news:  
New subsea cable linking Chile to Australia snubs Chinese connection
Etisalat’s CODERS strategy highlights the value of openness
The 5G-aliser – July 2020 update

 

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