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Vodafone India: Debt without End

The Managing Director and CEO of Vodafone India Sunil Sood (left) and his Chief Financial Officer Thomas Reisten at a press conference of Vodafone India in 2015.
Photo: Picture Alliance / dpa The Vodafone Group is active as a mobile communications provider worldwide, not only in Europe, but also in India. But the most brutal competition is raging on the Indian market. Vodafone "burned" a lot of money there.

The idea of ​​being able to have more than 1 billion mobile phone customers once led Vodafone to invest in India.

But then there was competition from the Indian mobile operator Jio, correctly "Reliance Jio Infocomm Limited". Like Vodafone, it operates an India-wide mobile network (with LTE) and had around 355 million customers in August 2019. This makes Jio the third largest provider in the world behind China Mobile and the Vodafone Group (in terms of user numbers). Jio is the market leader in India, ahead of Bharti Airtel. Jio Reliance also operates fiber optic networks, streaming services and builds smartphones. The Reliance Group is ruled by Mukesh_Ambani, a very wealthy entrepreneur who apparently takes great pleasure in further distressing his competitors.

Things became very tight for Vodafone in India. So close that three years ago they had to join forces with the Indian competitor "Idea" and found Vodafone Idea. But it didn't help.

6 billion gone in three months

The Managing Director and CEO of Vodafone India Sunil Sood (left) and his Chief Financial Officer Thomas Reisten at a press conference of Vodafone India in 2015.
Photo: Picture Alliance / dpa In the third quarter of 2019, Vodafone in India posted the largest quarterly loss of a company in the economic history of India with around 6 billion euros.

Vodafone alone had to pay more than 3.2 billion euros for licenses, fines and interest. Vodafone and others had lost a year-long legal battle with the Indian government. And this is how it came about: Indian mobile operators are supposed to pay 8 percent of the "adjusted gross sales" as a license. There are also between 3 and 5 percent for the frequencies. Now the dispute arose over the question of which formula should be used to calculate these numbers exactly? The industry wanted to calculate this from the "pure core business", but the government wanted to include the rents and dividends that had been achieved and was right before the country's highest court.

New funds to India?

Rumors have recently surfaced in India that the global Vodafone Group is planning to invest further funds in its Indian subsidiary "Vodafone-Idea" in order to cover the running costs and to help with the payment of taxes due. Vodafone vehemently denied and protested - as it did before to its own shareholders - not to want to spend any more money on the distressed company.

The Indian business newspaper Economic Times (ET) had claimed that the Vodafone Group wanted to help Vodafone Idea with 200 to 225 million dollars. Another 125 to 150 million dollars should then be contributed by partners "on the other side" such as the Aditya Birla Group. But there was also a big denial from there, as mobileworldlive, the news portal of the GSMA organization (the umbrella organization of all global mobile phone providers) found out.

1 billion reserves are not enough

In the merger of Vodafone India and Idea-Cellular, both sides had set aside around 1 billion euros to cover accrued debts that Vodafone had not had in mind before, i.e. there were no reserves there specifically for this.

Vodafone assured today that any further payment to "Vodafone Idea" would only be made from this pot and not from new money.

20 years payment term

After all, Vodafone Idea has succeeded in extending the payment terms for licenses and frequencies to 20 years. Otherwise the troubled company would simply have been closed. That might not have done the competition in India so good, the network expansion of the Vodafone networks in Europe (e.g. in Germany) might have done better in the medium to long term.