According to a media report, the Government of India is scouting for a “White Knight” to rescue the telecom firm, Vodafone-Idea! or VI, which faces imminent collapse and bankruptcy despite generous bailouts by the telecom ministry. It seems that the Government has initiated talks with both the domestic and foreign investors to pump in about $1 billion into the flailing company to pick up a 13-14 per cent stake. Typical of such news reports, the sources are anonymous but the overall story appears credible.
The total debt of VI is more than `2.3 lakh crore, and repayments will be due soon. With the subscribers’ base collapsing and revenues plunging, there is no way that the company can service those debts as things stand today. In the recent past, Vodafone has hinted several times that it is on the verge of bankruptcy, a claim that reflects its financial position, as also a way to get more benefits from the Government, which wishes to have at least three strong players in the sector to avoid a clear case of uncompetitive duopoly.
But the moot question is: Why is the Government lending a helping hand? Why not let the market forces take care of the issue to decide if VI can stay alive or not? If many large empires were allowed to go bankrupt under the Insolvency and Bankruptcy Code, why not do the same with VI, and hope that a large buyer will emerge to negotiate terms with the lenders? A potential buyer can gamble on the future of VI by negotiating a purchase of the stake in the company still owned by Vodafone and Birla-owned Idea.
Maybe 30 years of organisational and connectivity networks can be revived again. Or maybe not. In which case, VI fades into the sunset and becomes nostalgia, just as the famous ads of the service provider with a pug have become fond memories. More importantly, the regime has asserted that it is not the business of the State to be in business. That was the justification given when Air India was controversially sold to the Tata group a few years ago via a tender in which the only other bidder was the promoter of SpiceJet. This was also the reason for the sellouts of the Government’s stakes in other state-owned firms. Then why this extra concern for VI?
It is not as if the mobile phone sector in India is going to suffer a crisis if VI fights a valiant battle, and eventually gets martyred on the subscriber base battlefield. Today, the leading player is Reliance Jio with 500 million subscribers. The number two is Airtel with nearly 400 million. VI has steadily lost market share, and has less than 175 million subscribers with few premium ones. The tail belongs to state-owned BSNL with 55-60 million active subscribers.
Even if VI were to disappear from the market, the three others can comfortably take in the subscribers. In any case, tens of millions of VI subscribers have migrated or “ported” to Jio and Airtel. Given this backdrop, it does appear a little strange when the Government keeps making attempts to bail out a dying company to the point of even seeking a White Knight for negotiations.
But is it? The biggest loser if VI goes down the drain will be the Government of India. The private promoters of VI have already licked their wounds and given up. What is important is that like BSNL, VI is now a de facto state-owned company. The Government owns close to a 49% equity stake, thanks to conversion of debt into equity. When VI was in no position to pay overdue dues related to revenues and spectrum fees, the Government converted them into equity in 2025. Spectrum dues amounted to `1.3 lakh crore, and revenue-related ones `80,000 crore by the end of 2024.
Despite the part-conversion, there are huge dues that remain on the books of the company, and need to be repaid by the end of this financial year. Since VI has no reserves, and generates minimal revenue compared to the past, the writing on the wall is clear. Maybe a White Knight, if given the right incentives, can be persuaded to see a continued future in VI.
As a matter of fact, the VI story is one of how the executive and judiciary can deal a hammer blow to a company or even a sector in India. Just look at the chequered history of VI. The original license was won by the Essar Group in 1995. It partnered with the multinational Hutchison, and rapidly became a serious player. In 1999, the Atal Bihari Vajpayee regime made a radical reform: It stopped demanding an annual licensing fee and moved to a revenue sharing regime. That decision and the disruptive entry of Reliance in 2003 triggered a massive boom in the sector.
The global economy, along with that of India, was on a song in the first years of the first decade of this century. Telecom giant Vodafone bought the company in 2007, and it became Vodafone India. In 2012, the then finance minister dealt a hammer blow to Vodafone by imposing retrospective taxes that amounted to tens of thousands of crores. The matter went into litigation. Even as Vodafone struggled Mukesh Ambani once again disrupted the sector with Jio which offered free calls and ridiculously low data charges.
Vodafone and another leading player Idea joined hands and formed VI in 2017. But the death knell was sounded by the Supreme Court in 2019 when it pronounced that Vodafone, and other Telcos, had to pay the Government massive sums as past dues. Vodafone threw up its hands, and refused to invest further in the company. By then, VI lacked the resources to even launch 5G services, even as its two competitors became 5G-savvy. I was a loyal VI subscriber for close to 25 years. But since I needed 5G, I “ported” to Jio in 2022.
The lesson from this sorry saga is very stark: When arms of the State interfere with market forces, there is never a happy ending. Take another example which is not related to telecom. In 1998, the Supreme Court banned industrial units in Delhi, and made CNG compulsory for public transport. The idea was to reduce pollution. In almost 20 years since the verdict, pollution skyrocketed in Delhi. Then firecrackers were banned. Pollution keeps growing.