How Can Government Save Vodafone-Idea From Bankruptcy?

Even though there are very few chances that Vodafone-Idea could survive in India, analysts and brokerage firms are suggesting ways to avoid the duopoly in the industry. In fact, brokerage Deutsche Bank believes that the Government should merge BSNL and Vodafone-Idea.

The firm said that the merger can help ailing telecom operators from bankruptcy, especially after the apex court rejected its plea of recalculation of AGR dues.

Deutsche Bank Note On Merger Of BSNL And Vodafone-Idea

"The only viable solution is for the government to recapitalize Vi by converting its debt into equity, preferably while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives," Deutsche Bank note was quoted by ET.

The firm added that the Government debt is six times higher than the market cap of the telecom operator.

"Vi's shareholders would be heavily diluted as government debt is roughly six times the (telco's) current market cap, and such a solution might be an acceptable outcome to shareholders, with a $20 billion enterprise value feasible and non-dilutive", the firm further said.

Vodafone-Idea's AGR And Spectrum Payment Dues

It is important to note that Vodafone-Idea owes a debt of Rs. 1.6 lakh crore to the Department of Telecommunication. The debt includes adjusted gross revenue and deferred spectrum payment dues. For the unaware, the Vodafone Group Plc owns 44.39 percent share and Aditya Birla Group holds 27.66 percent share in Vodafone-Idea.

Furthermore, analysts suggested that Vodafone-Idea should come up with new initiatives to continue operating in India. They said that Vi should ask for more time from the Government to clear spectrum payments. Besides, India's third-largest telecom operator Vodafone-Idea should increase the prices of prepaid plans.

Additionally, Government should take a call on the floor pricing and reduce the license fee of spectrum usage charges to improve the situation of the telecom sectors and operators.

It is worth noting that the survival of Vodafone-Idea is not possible without the Government's support. And, if DoT wants three telecom players, then, it should come up with new measures to support the industry and all telecom operators, especially Vodafone-Idea, which is under deep financial crisis.