In a U-Turn, Vodafone CEO Says He’s Committed to the Indian Market

This comes after Vodafone said that its future in India could be in doubt if it is forced to pay thousands of crores

4 min read

Vodafone CEO Nick Read, in a letter to Telecom Minister Ravi Shankar Prasad, said on Thursday, 14 November, that the telecom giant remains committed to the Indian market, The Economic Times reported.

This comes after he said on Tuesday that Vodafone’s future in India could be in doubt if it is forced to pay thousands of crores in statutory dues following the Supreme Court ruling and asked the government to ease off on payment demands, according to PTI.


“The coverage in India has been distorted and I apologise for the impression that the coverage conveys. It doesn’t accurately represent my comments,” he wrote, “You have my word that Vodafone wishes to continue its long history in India given the right conditions.”

He thanked the government for “the setting up of the committee of secretaries to look into potential remedies and their considerable effort.”

“I would like to express my gratitude to the Indian government for designing a relief package in the light of the recent AGR (adjusted gross revenue) judgment and the financial stress the telecom industry is undergoing,” he added.

Read wrote this letter after top officials expressed disapproval over his earlier comments, according to ET.

‘Unsupportive Regulation’: What Nick Read Had Said Earlier

"Financially there's been a heavy burden through unsupportive regulation, excessive taxes and on top of that, we got the negative Supreme Court decision," the Vodafone CEO said on Tuesday, according to PTI.

After the SC ruling, the liability in telecom licence fee and spectrum usage charge together with penalty and interest for late payment may run into Rs 1.4 lakh crore for the industry. Vodafone-Idea may have to pay a third of it.

India, he said, had been “a very challenging situation for a long time”.

"It's a very critical situation," he said when asked if it made sense for Vodafone to remain in India without any relief package. "The government has stated its desire not to end up with a monopoly."

Vodafone's operating loss from India business reportedly jumped to 692 million euros in April-September from 133 million euros in the same period last year.


‘No Obligation to Fund Losses’

Vodafone on Tuesday wrote off the carrying value of its share in the loss-making joint venture, PTI reported.

It said the 1.9 billion euros in the loss for the group during six months ended 30 September "primarily reflects losses in relation to Vodafone-Idea post an adverse judgement against the industry by the Supreme Court of India."

In the earnings statement, the group made no further commitment to equity in India business, which it said contributed zero value.

It saw free cash flow of around 5.4 billion euros versus previous guidance of at least 5.4 billion.

The Supreme Court Ruling

"In October, the Supreme Court in India ruled against the industry in a dispute over the calculation of licence and other regulatory fees, and Vodafone Idea is now liable for very substantial demands made by the Department of Telecommunications in relation to these fees," the company said in its earnings statement, according to PTI.

“We are actively engaging with the government to seek financial relief for Vodafone Idea,” it said.

The liability in telecom licence fee and spectrum usage charge together with penalty and interest for late payment may run into Rs 1.4 lakh crore for the industry. Vodafone-Idea may have to pay a third of it.

Vodafone said it has "no obligation" to fund Vodafone Idea Ltd losses and so it "has recognised its share of estimated Vodafone Idea Ltd (VIL) losses arising from both its operating activities and those in relation to the (Supreme Court) judgment to an amount that is limited to the remaining carrying value of VIL, which is therefore reduced to nil."

The group's carrying value was 1,392 million euros at 31 March, 2019, and in May 2019, the group invested 1,410 million euros via a rights issue.

The Way Forward

"Significant uncertainties exist in relation to VIL's ability to generate the cash flow that it needs to settle or refinance its liabilities and guarantees as they fall due, including those relating to the (Supreme Court) judgment.”

VIL is seeking relief from the Indian government, including, but not limited to, granting a waiver of interest and penalties relating to the judgment,” the statement said.

It said as part of the agreement to merge Vodafone India and Idea Cellular, the parties agreed a mechanism for payments between Vodafone Group and VIL pursuant to the crystallisation of certain identified contingent liabilities, PTI reported.

These were in relation to legal, regulatory, tax and other matters, including the Adjusted Gross Revenue (AGR) dispute before the Supreme Court, and refunds relating to Vodafone India and Idea Cellular.

"Any future payments by the Group to VIL as a result of this agreement would only be made after satisfaction of contractual conditions. Having considered the possible future developments for VIL, the Group has concluded that there are significant uncertainties in relation to VIL's ability to settle the liabilities relating to the AGR judgment and has not assessed a cash outflow under the agreement to be probable at this time," it said.

The group's potential exposure under this mechanism is capped at Rs 8,400 crore (1.1 billion euro).


The Dispute

The Department of Telecommunications (DoT) has been in dispute with telecom service providers for over a decade concerning the correct interpretation of licence provisions for fees based on AGR, a concept that is used in the calculation of licence and other fees payable by telecom service providers, PTI reported.

On an appeal to the Supreme Court from a decision of the Telecommunications Dispute Settlement Appellate Tribunal (TDSAT) substantially upholding the telecom service providers' interpretation of AGR, the Supreme Court on 24 October held against the telecom service providers, including VIL.

The Supreme Court’s ruling in favour of the DoT renders the telecom service providers, including VIL, liable for principal, interest, penalties and interest on penalties within three months.

"Application maybe made to seek review of the Supreme Court's decision," the statement reportedly said.

(With inputs from PTI and The Economic Times)

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