Vodafone Idea Merger
Vodafone and Idea, India’s two famous telecom companies merged themselves to become India’s biggest telecom company a year ago which put together a subscriber base of 400 million. But if I talk about today then the highest subscriber base is held by Reliance Jio which is 330 million. So, this means that Vodafone and Idea’s subscriber base rather than going up has gone down. It has reduced from 400 million to become 320 million.
Apart from this, you must’ve heard a lot of news now and then, related to Vodafone and Idea. You must want to know about what’s happening between them and what can happen to them in the coming days? Also, what were the reasons because of which Vodafone and Idea Which was at one point India’s biggest telecom company, has now reached the point of closing?
Vodafone Idea Current Scenario
Let us discuss in this article. First, we will talk about the chain of events because of which Vodafone and Idea are in the state they are in today. After that, if you’re thinking of putting in money in Vodafone and Idea, then what should you do? After the smartphone was launched, there was a big boom in the telecom sector in India. A lot of market participants came, and they earned a lot of money and internet Which at one point was a luxury for the people, now became a utility. After the penetration of the internet, many new companies came into this market segment. Everyone took great advantage in this segment and maybe the companies thought that in the coming time, they will continue to get those advantages because of which, when companies get too over-optimistic, they start undertaking debt.
The same thing happened in the telecom sector. All the companies started undertaking debt and of those, there were two companies, Vodafone and Idea. They also undertook a lot of debt because they thought that in the coming time, the telecom sector will expand more and for that, even they should get some money and start expanding. They kept undertaking debt thinking that the companies will take advantage of it, but that did not happen. So, in that industry, a new market participant entered whose name everyone knew, that Reliance Jio was going to come But nobody knew that company would come and disrupt the entire industry.
At one point, the companies that were taking a lot of advantage of the industry, all the tables were turned because Reliance Jio entered and disrupted the whole company through pricing. They reduced the pricing so much that in the whole industry, all of the users started to get attracted to Reliance Jio and the most negative effect of this was on its competitors because their users started to churn. All the users churned and started going towards Reliance Jio Because of which, Reliance Jio has become India’s biggest telecom company.
You will be shocked to know how much Reliance Jio reduced the price of data in India. I will tell you in figures, how cheap the price of data is in India If I talk about data, then in India, the price of 1gb of data on an average Is ₹18 If I compare this to the US, then the price in US is around ₹840 and if we talk about the global average Then it is around ₹550. You can listen and estimate that in India, How much lesser the price of data is If we compare it to other countries. Now, I will tell you about the news that has recently come and in this news, it was mentioned that Vodafone-Idea suffered a loss of ₹50,000 crores in this quarter If I talk about this figure.
Then in Indian history, this is the biggest loss of any company in one quarter Which any company has booked until now in independent India. Now, you must be thinking that what happened in this industry and what was the reason behind this Because of which Vodafone-Idea suffered a loss of ₹50,000 crore And Airtel suffered a loss of ₹20,000 crores. Before going to the reason behind this, I will tell you a very interesting fact that Vodafone-Idea’s loss in this quarter was of ₹50,000 cr. If you would’ve ever seen what the market capitalization or market cap of Vodafone-Idea, then it is only ₹10,000 cr. So, this has become such a company Whose market cap, is much less as compared to its quarterly loss.
If we talk about the controversy because of which Vodafone-Idea had to suffer such a heavy loss, that revolves around one term and that term is known as AGR (Adjusted gross revenue). Now, you must be thinking what this means, I will get to the meaning of this and will also explain it in detail but before that, let us talk about the telecom industry. The telecom industry has a big infrastructure that is owned by the government and many companies use the government’s infrastructure to conduct its operations. A few years ago from now, the government started telling the telecom companies from their revenue, they have to give the government some share because they use the government’s infrastructure. This is where the controversy starts.
The government told the companies that the share/fees that it wants, they want it on the total revenue but the companies started saying that they won’t give that percentage of fees from their total revenue but they will give the fees only of that infrastructure that they use. This is where the entire story starts from and the issue kept on growing from here and reached the supreme court and this case started in the supreme court and some time ago, the judgment came from the supreme court that all the companies have to give the share to the government on their total revenue but they don’t have to give the share for the infrastructure that they are using.
Now, the companies got a lot of pressure suddenly because, they had to give the government a certain amount of fees from their total revenue from the past few years which, for Vodafone-Idea, was more than ₹20-25,000 cr in total. The effect of this judgment/penalty was not only on Vodafone-Idea but it was also on one more big company in this sector, Airtel. They also had to pay a high amount of penalty because of which they booked a loss of ₹20,000 cr in that quarter. Now, you must be thinking, that in this sector, are these the only companies?
No, friends, in this sector there are 12 others that have been closed on whom, there was no penalty placed now and one more company in this sector is Reliance Jio. You must be thinking that a penalty was placed on them as well but, on Reliance Jio, very less penalty was placed because they started their operations very recently, only a few years ago because of which they did not have that much of a burden as big a burden as Vodafone-Idea and Airtel.
Should We Invest in Vodafone Idea?
So, if something happens that this company shuts down, what will the effect on investors like you and I be? Like me, you must be thinking that maybe you haven’t invested in that company So, you won’t be affected at all So, if Vodafone-Idea, closes its operation for whatever reason, its biggest and first effect will be on the banking sector. This will happen because Vodafone-Idea has a debt of more than ₹1 lakh cr and if the company closes for some reason, If it closes its operations, then they won’t be able to pay the entire debt because of which, there will be a lot of pressure on the banking sector and you already know that the sector is already trying to get out of problems and it is not as stable as it should be.
Also, a lot of mutual funds have directly or indirectly invested in Vodafone-Idea. The effect of which can be on investors like you and I If, as an investor, you’re still thinking of investing in this company, then you should take every step very carefully because if the company survives the current situation, and it revives itself to come at the top again, Then, there is a big chance that it will earn and give us a lot of money But after looking at the present conditions, If, by chance, the company is unable to revive itself, then all our money can go down as well. So, as an investor, you have to decide for yourself what you should do with that share. You should do your research, use this article to check your facts, and then decide what you should do.
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