UK's Vodafone seeks relief on spectrum dues

MUMBAI|NEW DELHI: Top executives of UK’s Vodafone Group sought a two-year moratorium on payment of spectrum-related dues by Indian joint venture Vodafone Idea, said people familiar with the matter. This is the third time this year that its executives have sought such relief in meetings with the government, underscoring financial stress at the carrier, which has been posting losses and losing customers since Vodafone Idea and Idea Cellular merged in August 2018.During their meeting with telecom secretary Anshu Prakash on Monday, Vodafone Group chairman Gerard Kleisterlee and chief executive officer Nick Read also sought “a refund of Rs 32,000 crore of input tax credit (due to telcos) which has been held by finance ministry,” said one of the persons.They were accompanied by other senior executives of Vodafone Idea, including new CEO Ravinder Takker. Analysts estimate Vodafone Idea’s spectrum repayments to be around Rs 24,400 crore, split over FY20 and FY21. The executives also met commerce and industry minister Piyush Goyal during the day. They were scheduled to meet telecom and IT minister RS Prasad as well, but he had to go to Patna to oversee flood relief measures. After meeting the telecom secretary, Kleisterlee said, “We look forward to the results of that.”71384094 ‘Meeting Quite Productive’CEO Read added that the executives had very “productive” meetings with government representatives. Asked whether the UK telecom company was contemplating an exit from the joint venture and the Indian market, he said, “We’re absolutely focused on the successful integration of Vodafone Idea.” Vodafone Group declined to comment on specifics of the discussions. This is the second time top officials of Vodafone Idea — bloodied by a brutal price war since Reliance Jio’s entry in September 2016 have met officials in the communications ministry in the past two months. Aditya Birla Group chairman Kumar Mangalam Birla, also nonexecutive chairman of Vodafone Idea, along with Takker met Prasad last month to seek relief after the telco had raised similar demands in meetings with Department of Telecommunications (DoT) officials in January.The government is of the view that not all telcos want such relief and that such a relaxation can’t be given to only one company. Soon after Birla’s meeting with Prasad in August, the minister had written to finance minister Nirmala Sitharaman, urging measures to ease the payout burden on the telecom industry by offsetting spectrum and other payments to the government against the accumulated Rs 36,000 crore input tax credit with the Centre. He had also sought a cut in the universal services obligation (USO) levy to 3% from the current 5%, which would effectively reduce the licence fee to 6% from the current 8%, besides a reduction in the goods and services tax (GST) rate, first to 12% and then lowering it further, from the current 18%.As separate entities and after the merger Vodafone Idea has been posting losses. The company has lost over 100 million customers in less than a year since completion of the merger to 321 million at July end. It posted a consolidated loss of Rs 4,873.9 crore in the June quarter, while revenue fell over 4% sequentially, despite a rise in average revenue per user (ARPU).Debt at the end of June was around Rs 99,300 crore, factoring in a rights issue of Rs 25,000 crore, but debt to equity was still at a high of 12 times, according to Goldman Sachs. Analysts said the telco would need another round of equity infusion by the second quarter of FY21 to plug a potential Rs 7,600 crore ($1.06 billion) funding gap. “Vodafone Idea’s gross debt stood at Rs 1.22 trillion at end-FY2019 (including) Rs 907 billion deferred spectrum liabilities,” said analysts at Kotak Institutional Equities. “Spectrum payout instalments stand at around Rs 122 billion per annum for the next many years.”“Barring a regulatory or structural change in the market, we question the company’s ability to sustain these investments,” analysts at brokerage UBS said in a recent note to clients, adding that it is expected to continue to lose market share as network integration and delayed 4G rollouts weaken the competitive position.

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