Kumar Mangalam Birla's Offer To Hand Over Vodafone Idea: What It Means

Vodafone Idea: The data costs have already started inching upwards in what was the world's cheapest data market in the not-too-distant past and could only get dearer in the future

Kumar Mangalam Birla's Offer To Hand Over Vodafone Idea: What It Means

AGR dispute is over revenue-sharing between the government and telecom companies

Aditya Birla group Chairman Kumar Mangalam Birla, who holds around 27 per cent stake in Vodafone Idea, has expressed a desire to hand over his stake in the debt-laden Vodafone Idea (VIL) to the government or any other entity chosen by the centre. The telecom sector used to be a bustling space just a few years ago, with the participation of a dozen players. All the companies have gone down under since then, with the exception of Vodafone Idea, Bharti Airtel and Reliance Jio, due to a two-decade-old festering dispute over revenue-sharing between the government and telecom companies.

The dispute centres on the definition of adjusted gross revenue (AGR). Telecom companies pay a percentage of their revenues as license fees to the government. According to them, non-core businesses such as rent, income from sale of handsets or roaming charges should not be included in the revenue of which they pay a percentage - they only wanted to pay on revenues earned from their core business. The government obviously thinks otherwise.

According to the Department of Telecom, Bharti Airtel owed more than Rs 43,000 crore as adjusted gross revenue (AGR) dues, while Vodafone Idea's balance payment exceeded Rs 50,000 crore. The two companies had approached the Supreme Court for recomputing their AGR dues, but the top court dismissed the plea.

Mr Birla has made it clear in his letter that foreign investors, mostly non-Chinese, are hesitant to make investments in Vodafone Idea for "understandable reasons." In light of this, will the government allow Vodafone to close down or will it opt for nationalization of the embittered company?

Allowing Vodafone Idea to close down will leave the wide telecom arena open for a two-horse race between Reliance Jio and Bharti Airtel, with the Mukesh Ambani-owned entity calling all the shots. The lack of competition could prove detrimental to consumer interests. The data costs have already started inching upwards in what was the world's cheapest data market in the not-too-distant past and could only get dearer in the future.

Nationalization could be an option, if only to save jobs. But the government has announced its intent to take the private route and the process for the sale of Air India is already underway. Moreover, historically, governments have not done a good job at running businesses in the past.