Nick Read weighs the all-important question: Has India stopped being 'the most painful market' to operate a telecom?
Just as Vodafone Idea Ltd. was about to drown under the weight of its $30 billion debt, India has thrown a lifeline to the U.K. operator’s local joint venture. The rescue is only one of the tea leaves Group CEO Nick Read will read as he weighs the all-important question: Has India stopped being what Deutsche Bank AG analysts recently described as “the most painful market” to operate a telecom? The answer will decide if it’s time to make a fresh play for the 1.4-billion-person market.
A moratorium on New Delhi’s bloated back-fee claims, extra time to pay for the spectrum purchased in past auctions, and a relief from onerous bank guarantees add up to at least 316 billion rupees ($4.3 billion) in liquidity support, according to Investec Capital Services. That would keep Vodafone Idea going, though stabilizing a business that has lost more than a third of its 400 million-plus subscribers in three years will need a lighter debt load, and a thicker equity cushion. In other words, a true revival will require an optimistic view of the future.
That may be hard to muster given the industry’s checkered past. The unfailing regularity with which India has sprung negative surprises on its wireless firms will make it hard for reading--and his board--to be persuaded that this time may be different.
Investors like Norway’s Telenor ASA, which had entered India a little later than Vodafone, got burned when the country’s Supreme Court canceled 122 telecom licenses in one fell swoop in 2012, suspecting irregularities in their award. This was also when New Delhi, after losing a tax case against Vodafone, retrospectively changed the law to hound the operator with a $3 billion demand. That messy quarrel dragged on until an international arbitration panel threw out the government’s claim last year; it destroyed the firm’s chances of going public in India.
Then five years ago, Mukesh Ambani, India’s richest man, upended the economics of the business by entering the fray with free voice calls and cheap data. A field of a dozen operators effectively shrank to just three. To survive, Vodafone merged its network with Indian billionaire Kumar Mangalam Birla’s publicly traded Idea Cellular Ltd., creating what was then the country’s largest wireless service.
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