VODA IDEA USERS NEED NOT FEAR: EXPERTS

If company files for bankruptcy, rules say daily functions will continue till the entity is sold

Vodafone Idea customers need not panic in case the company files for bankruptcy, because under the Insolvency and Bankruptcy Code (IBC) a company continues to operate its services even after it is admitted by the National Company Law Tribunal (NCLT) as a stressed asset.

According to IBC rules, the committee of creditors (COC), which includes all the banks the firm owes, confirms the appointment of the resolution professional (RP), who apart from finding a buyer ensures the day-to-day functioning of the company. The board ceases to have any powers.

In simple terms, this means that Vodafone’s customers, around 300 million, will not suddenly find that their services have been stopped and that they have been left with no choice but to port out to competitors

Bharti Airtel, Reliance Jio or BSNL.

Experts say these three operators do not have the network capacity to handle such a huge number of new customers over those they already have. To do so, they would have to invest huge amounts of money to virtually double their current capacities. Telcos say that at most they could absorb about 100 million additional customers and that, too, in phases.

However, the trend has been that news of a company being up for sale prompts a quick churn of customers over fears of loss of service quality, especially when the focus of the management is on sale rather than competing in the market.

A delay in finding a resolution under IBC leads to a substantial fall in the firm’s valuation. That happened with Aircel, where creditors took a 99 per cent haircut, customers shifted quickly to other telcos, and even then the deal could not be closed.

Telcos that have gone through the process say that it is only in case of liquidation that they have to give a 90-day notice to customers that they are shutting down and help them in porting.

However, that is done only when no buyer is found. In the case of Reliance Communications, which closed operations, about 85 million customers ported out to other telecom companies.

The question then is if Vodafone can find a buyer? Analysts say if the competition clause kicks in — in case a telco has more than 50 per cent subscribers or revenue share of a circle (in Vodafone’s case they had to reduce subscribers to be within the 50 per cent market share clause in some circles) — it would be virtually impossible for either Reliance Jio or Airtel to buy the company as they would cross the 50 per cent threshold.

However, it is possible for a new player to join the game. Analyst say that such a player could leverage many advantages. First, it does not have to pay Vodafone’s huge adjusted gross revenue dues of over ~50,000 crore once the company is under the IBC.

However, the Department of Telecommunications can demand the money as an unsecured creditor, just like vendors whose priority comes much later than the bank creditors who owe money from the company. The same route was taken in the Rcom case, which also had substantial dues according to the SC verdict, where the RP is looking for a buyer of the three companies — Rcom, Reliance Telecom and Reliance Infra.

Second, the prospective buyer does not have to pay the deferred spectrum dues for two years as the government has provided a moratorium to help telcos out of the financial mess.