Final Twist In Vodafone-Idea Saga: Potential VIL-BSNL Merger?

Birla had begun issuing ‘death warnings’ earlier. In 2019, he had cautioned that VIL may have to down shutters if it did not get relief on near-unmanageable liabilities stemming from pending past dues. “It doesn’t make sense to put good money after bad. If we do not get anything, it is end of story for Vodafone Idea. We will (have to) shut shop,” Birla had said.

After due back and forth, the Government extended an olive branch, approving writeoffs and moratoriums for VIL. In return, it became a shareholder in the debt-ridden telecom operator. Over time, the VIL equity structure fluctuated. And till recently, the Government owned 22.6 per cent, Vodafone UK 24.4 per cent and Aditya Birla Group 14 per cent.

People also began whispering sweet nothings of an impending VIL-BSNL marriage.

Final, Vicious Twist: Government on India Gets Majority

Last week, in a final, ordained twist, the VIL ownership structure reached tipping point, with the Government deciding to convert VIL’s outstanding dues into equity of Rs 36,950 crore. The Government will bet a further stake against the new writeoffs. Revised holdings – Government 48.99 per cent, Vodafone UK 16.1 per cent and Aditya Birla Group 9.4 per cent. 

The Government has also offered a moratorium on future payments and tweaked outgoings and fork-out schedules, not just for VIL but for Jio and Bharti Airtel as well. This has been done in the past too for all operators, but only in VIL has it translated into equity dilution in the Government’s favour.

This has led analysts to question VIL’s ability to meet payment deadlines when the moratorium ends. “VIL’s very existence will be tough. It will face funding shortfalls of Rs 25,000 crore in FY26 and of Rs 36,000 crore in FY27. Raising the funds will entail tariff hikes of 84 per cent and 122 per cent, respectively, which is highly unlikely,” Emkay Research said.

Emkay said even if future dues are converted to Government equity (Rs 17,400 crore each year), it will offer little relief to VIL, as it will face much bigger shortfalls of Rs 13,000 crore in FY26 and Rs 18,500 crore in FY27. Nail in the coffin: “We have no rating on VIL due to future marketshare losses, fund-raising delays, possible equity dilution and volatility in stock prices.”

The marriage sweet nothings are hence getting louder.

Brokerages Writing Down VIL As Standalone Entity

Sensing the inevitable, brokerages feel the cash squeeze and liquidity pressures will be too much for VIL to bear. “There are other affiliates to be protected,” says IIFL Securities. “Dues to tower arm Indus Towers are at risk and increase its doubtful debt provisions.” Brokerage Kotak also pointed out that Indus’ dues from VIL have risen to over Rs 9,500 crore.

Motilal Oswal said: “VIL’s liquidity outlook appears bleak as there is a scheduled repayment of Rs 7,000 crore due in FY24. Cash and equivalents stood at a modest Rs 250 crore in June last year. Assuming 12x EV / EBITDA and a net debt of Rs 2.11 lakh crore, there’s limited (if any) opportunity for equity shareholders.”

Joining the doomsday cavalcade is Goldman Sachs, which says in the absence of significant tariff hikes, VIL would need to infuse US $8-10 billion (Rs 70,000-87,000 crore) in fresh capital by 2027 to roll out and maintain a network that can compete with Jio and Bharti Airtel.

Barely buried in these broker-house statements is a deep and discernible crescendo, one that shouts out that the caterer and songs are being finalized for the wedding with BSNL.

What Would Such A Wedding Mean for Telecom?

You need to understand the telecom space, which is predominantly Jio Infocomm and Bharti Airtel. Much behind them are VIL and Bharat Sanchar Nigam Limited. Despite boasting a flurry of symbiotic network assets, the two differ starkly in outlook – VIL is struggling for survival, BSNL is going all out for a revival.

BSNL is rolling out 4G and 5G networks, with Government ownership giving it access to the funds needed to match up to the top guns. VIL is one of India’s original telcos but still has no 5G spectrum or network, which was a conscious move to curtail costs. VIL faces unmanageable debt and statutory liabilities, but it too is now majority-owned by the Government.

If we talk subscriber numbers, Jio Infocomm is the clear market leader with 46.5 crore users, while Bharti Airtel has 38.5 crore, BSNL 9.3 crore (including MTNL’s 10 lakh users) and VIL 20.7 crore. Look into the crystal ball and the VIL-BSNL combine would have exactly 30 crore users.

Network, expenditure and manpower synergies would kick in for the two, with the icing being Government backing. BSNL has networks where no other telco has gone yet, and Vodafone’s 3G and 4G networks repeatedly fare as the best in studies conducted by Telecom Regulatory Authority of India (TRAI) and independent bodies.

If it happens, it would not be a marriage made in heaven, but could work well for India and Indians, helping maintain some competition and warding off a market duopoly.

VIL, which Kumar Mangalam once admitted was at “an irretrievable point of collapse”, would get a renewed lease on life. BSNL would get access to robust 3G / 4G networks, an army of tried and tested subscribers, and international and national best business practices from minority-owners Vodafone Plc and Aditya Birla Group.

Soliloquy: The other option available to the Government is to sell off its VIL stake to the highest bidder – that can only mean Jio or Airtel. But such a move would make Indian telecom a two-horse race, a forced duopoly. That is not good for any business, any country or any population. For this reason alone, the Government is unlikely to walk the selloff road.

(The writer is a veteran journalist and communications  specialist.)