Vodafone and Idea, two of India’s leading telecommunications companies, may be forced to shut down in the next 45 days due to a mounting debt and a significant loss of market share. The companies, which merged in 2018 to form Vodafone Idea Limited (VI), had a combined market share of over 47% and generated over INR 10,000 crore in profit in 2013.
At the time, Idea was known for positioning itself as a lifestyle brand and for its viral “What an idea sirji” ads, while Vodafone had acquired Hong Kong-based telecom company Hutch, known for its popular ads featuring a small child and a pug dog. Both companies were highly profitable, with profits reaching as high as INR 9,000-10,000 crore.
However, their fortunes began to change with the entry of Reliance Jio, a telecom company that disrupted the market with its free internet and telecom usage. Within a year of its launch, Jio’s market share rose to 12.5%, while VI’s market share fell to 35%. Since then, VI has faced a constant decline in market share and has racked up a debt of INR 15,000 crore.
Telecom company Vodafone Idea, jointly operated by Berkshire-based Vodafone and India’s Aditya Birla Group, is reportedly in discussions with various banks to secure loans totaling more than INR 7,000 crore, according to The Economic Times. The report states that lenders such as the State Bank of India, Punjab National Bank, HDFC Bank, and IDFC First have been approached for the loans. however as per news website BQprime, Banks, led by the State Bank of India, are hesitant to extend further credit to Vodafone Idea Limited.
Mismanagement Contributed to Vodafone Idea’s Current Struggles
After many other telecom companies had shut down, the two oldest service providers in India, Airtel and Vodafone Idea (Vi), struggled to compete with the emergence of Reliance Jio. Both companies agreed to a four-year moratorium on payments, after which they would have to pay the amount in six installments. Airtel has already paid four installments in advance, while Vodafone Idea has agreed to give a 32% stake to the government through equity conversion.
According to a report, senior officials believe that the current situation at Vodafone Idea is the result of mismanagement by the company’s management. These officials reportedly think that following the merger of Vodafone India and Idea Cellular, the company’s management, including the costly purchase of excess spectrum that is now unused, has contributed to Vodafone Idea’s struggles.
In 2021, VI faced a loss of INR 7144.6 crore, despite a 12.8% increase in revenue. In an effort to pay off their debt, the company plans on selling a 32% majority stake of their company to the government. However, the government will only agree to the deal if VI promises to roll out 5G services in the near future.
The potential shutdown of Vodafone and Idea serves as a warning for businesses that fail to innovate and adapt to the changing market. Despite their past success, the companies were unable to compete with the emergence of Reliance Jio and now face the possibility of closing down. It remains to be seen if VI will be able to secure a deal with the government and turn their fortunes around.