Is it time for Vodafone to bid farewell to the Indian telecom market?

The price wars in the Indian telecom market have pushed the value of Vodafone's Indian joint venture to zero as Vodafone CEO Nick Read indicates that the Indian operations will be headed for liquidation unless the government provides some relief on the spectrum fees. Vodafone, has written off the book value of the Indian business.

BY KASHISH SINGLA | 3 min read

Nick Read(CEO of Vodafone) said that he won’t infuse any further equity into Vodafone Idea Ltd (VIL) and therefore reducing the carrying value of its joint venture with the Aditya Birla Group to nil after the Supreme Court ruling on adjusted gross revenue (AGR).

According to the latest financial records, the book value of Vodafone's 45 percent stake in the joint venture, Vodafone Idea, has jumped  to nil  in November 2019. They however had a book value of  more than EUR 2 billion (roughly Rs. 15,800 crores) in June 2018. Most of the bad news came from India which included decrease in cash flows and written down losses and provisions of Supreme Court judgement.

Nick Read and Vodafone Chairman Gerard Kleisterlee met government officials in September to sought for relief in spectrum fees etc, by  saying  that Vodafone is the largest foreign investor in the country. A government committee was set up in this regard and  is considering the request.

Read also stated that “ financially there has been a heavy burden through unsupportive regulations and high rate of taxes and on most importantly negative supreme court's decision”

The Supreme Court decision  being referred to above is the one of  Union of India vs. Association of Unified Telecom Service Providers of India, which is regarding the interpretation of adjusted gross revenue (AGR), a concept helped in  calculation of  regulatory fees. This judgement  put an end to the legal battle, the supreme court said that telecom operators have to shell out a whopping Rs 92,000 crore in total as past dues at a time when they are already grappling with tough competition, debt pressure and shrinking revenues. Due to this, Vodafone Idea now has to pay Rs 28,000 crore as additional licence fee dues, in addition to spectrum usage charges which are  over Rs 11,000.