The latest big news from the Indian corporate sector is quite surprising. In extending a fresh lifeline to Vodafone Idea (Vi), the central Government has decided to convert Rs 36,950 crore of spectrum dues into equity, thus rendering itself the largest shareholder in the telecom sector company. The Government’s equity holding will now be almost 49 per cent.
Let us examine the financial position of Vodafone Idea. The company reported a loss of Rs 6,600 crore in the quarter ending December 2024. Additionally, it faces significant liabilities, including spectrum dues amounting to approximately Rs 1.4 lakh crore and Adjusted Gross Revenue (AGR) dues of Rs 70,000 crore. On top of that, Vodafone Idea has a bank debt of Rs 2,300 crore, further adding to its financial burden. The operational data of the company is further depressing. It’s average revenue per user is Rs 163, much less compared to its competitors — Bharti Airtel (Rs 245) and Reliance Jio (Rs 203).
The Government buying into the equity of this loss-making and debt-ridden company does not appear to be a cool idea from the point of view of professional soundness and more importantly national interest. Instead of buying another equity chunk of the decrepit company Vodafone Idea, would not the Government have done better to use the same money to improve the operational efficiency of BSNL, its own PSU in the telecom sector?
Improving the professional services of BSNL and making them more attractive would be in the interests of its subscriber-consumers as also the larger national interest since BSNL is a central sector PSU, a national asset. It will improve the bottom line of BSNL as it is operating presently with an operational loss — a net loss during 2024 of Rs 5367 crore.
It’s true, at the present low rate of Vodafone Idea equity share in this beaten-down stock market, it could appear as an attractive deal but it seems to be far from any commercially viable business proposition. The idea that this will shore up the commercial top-line of Vi is also quite farfetched. This is because the Government proposes to leave the operational matters of Vi to its promoters. The professional gaps in operational efficiency of the company will remain untouched and unaddressed.
It is to be noted that the notion that this step will generate more competition in the telecom sector is also not borne out by strong logic. The duopoly of Reliance Jio and Bharti Airtel can be better dented by spending more of exchequer money on BSNL in which the entire operational and managerial control is in the hands of the central Government.
It was not very long ago that the Narendra Modi Government had declared that the Government had no business to be in business. During the first two terms of this Government, much was done by way of disinvestment in many PSUs with some of them put up for outright sale. Now, to invest money by buying the equity stock of an existing private sector company which is, at the same time, saddled with losses, receivables and substantial bank loans hardly looks like a bright idea and is inconsistent with the earlier pronouncements of the Government.
Why the average revenue per subscriber of this company is far less than that of its rivals is simply explained by the fact that its schemes are unattractive and so relatively unpopular. The very fact that the company has huge dues on the spectrum side and the Average Gross Revenue (AGR) side means that the company is stuck with big-time defaulters from whom it is unable to recover its payment dues.
The central Government would do well to invest in BSNL to shore up the operations of BSNL to make it like the well-groomed, managed and professionally run PSUs like BHEL, MDNL or NTPC. Alternatively, it should auction BSNL to the private sector like VSNL was sold to the Tata group.
Accountability is the watchword.
The Government is responsible and accountable toward the taxpayers whose money needs to be carefully and prudently spent with complete focus on their interest.
After all, the taxpayers are the prime nation builders whose enterprise and professional output constitute the main input for economic growth of the nation.
Finally, the disinvestment policy of the Government should be strategic and selective, not dogmatic. If it is to stay away from active business and concentrate on governance, it should not spend public money to buy equity of loss-making private companies.
What ails Indian telecom?
The Indian telecom sector, despite its rapid expansion and critical role in digital transformation, faces several deep-rooted challenges. One of the biggest issues is the financial distress of telecom operators, primarily due to high spectrum costs and the burden of Adjusted Gross Revenue (AGR) dues.
Companies like Vodafone Idea have struggled with mounting liabilities, impacting their ability to invest in network expansion and service improvements. Additionally, intense price wars, triggered by the entry of Reliance Jio, have significantly reduced tariffs, eroding profit margins across the industry.
The dominance of a duopoly — Jio and Airtel — has further weakened competition, limiting consumer choice and market dynamism. Infrastructure development remains another concern, as 5G rollout demands heavy investments, but cash-strapped telecom players find it difficult to allocate sufficient capital.
Moreover, policy uncertainties, regulatory burdens and inconsistent Government interventions have added to the sector’s instability. The lack of domestic telecom equipment manufacturing also forces companies to depend on costly imports, further straining their finances. Slow rural network expansion has widened the digital divide, limiting access to quality telecom services in remote areas.
To ensure long-term sectoral health, a balanced regulatory framework, financial restructuring and strategic Government support are essential.
In conclusion, the Government’s decision to convert Vodafone Idea’s spectrum dues into equity raises critical questions about fiscal prudence and policy consistency.
While the move may offer temporary relief to Vi, it does little to address the company’s fundamental operational inefficiencies or its struggling market position.
More importantly, it contradicts the Government’s stated stance on minimising direct involvement in business. Rather than investing public funds in a private, debt-laden company, a more strategic approach would have been to strengthen BSNL, which remains a national asset under full Government control.
A well-capitalised and professionally managed BSNL could serve as a genuine competitor in the telecom sector, countering the dominance of Reliance Jio and Bharti Airtel more effectively.
Furthermore, the argument that Government intervention will promote competition in the telecom space is weak, as it neither addresses Vi’s structural challenges nor guarantees its financial revival.
A more logical course of action would be to either revamp BSNL’s operations to improve its efficiency and market standing or privatise it strategically, as seen in the case of VSNL.
Ultimately, taxpayer money must be deployed with diligence and accountability.
Investing in a struggling private entity with no direct control over its management is not just financially questionable but also inconsistent with the broader disinvestment strategy the Government has pursued over the years.
Policymakers must weigh such decisions carefully, ensuring that public funds serve national interests rather than propping up unsustainable businesses.
(The writer is a management and business consultant based in New Delhi. Views expressed are personal)
