🧾 CASE STUDY 4: Vodafone Idea – Spectrum Dues,
Survival, and Strategic Dilution
Vodafone Idea (Vi), once India’s largest telecom provider, was born out of the 2018 merger
of Vodafone India and Idea Cellular. However, instead of becoming a market leader, it
entered a period of financial ruin due to massive AGR (Adjusted Gross Revenue) dues,
rising debt, and Jio-led price wars.
By 2020, Vi owed over ₹58,000 crore to the government in AGR dues alone. With limited
cash flow and falling subscriber base, Vi was on the brink of bankruptcy.The Supreme Court
ruled in favor of the DoT’s definition of AGR, which included non-core revenues. This led to
retrospective dues being applied, severely damaging Vi's balance sheet. Despite multiple
pleas, the court did not grant full waivers.
Meanwhile, Airtel and Jio, though also hit, had more financial strength and backing. Vi
became the weakest of the trio. In 2022–23, the government offered a relief package,
allowing telecoms to convert interest on dues into equity. Vi accepted this, and the Indian
government became the largest shareholder, owning 33% of the company.
Promoters (Vodafone Plc and Aditya Birla Group) refused to infuse more capital. Instead, Vi
hoped for strategic investments and fundraising rounds to stay afloat. The equity dilution
shocked the market. The share price dropped. Yet, it also gave Vi breathing space to invest
in 5G and retain operations. Vi’s subscriber base continues to fall, ARPU (Average Revenue
Per User) is the lowest in the industry, and its debt remains huge. However, with a possible
tariff hike and 5G rollout, some analysts believe Vi may stabilize—if it survives long
enough.
🧠 CASE STUDY 4 QUESTIONS (15 MCQs)
Q1. What was the core financial issue that led to Vi’s distress?
a) Low 4G penetration
b) AGR dues from non-telecom revenues
c) Spectrum auction mispricing
d) FDI cap violations
Q2. What legal body decided on the AGR issue?
a) SEBI
b) Telecom Regulatory Authority
c) Supreme Court of India
d) NCLT
Q3. Which principle caused non-core revenues (like rent and interest) to be included in
AGR?
a) Revenue Recognition under GAAP
b) Cash-Based Accounting
c) Government Telecom Lease Act
d) Expanded interpretation of licensing agreements
Q4. Why did the government convert Vi’s dues into equity?
a) To nationalize telecom sector
b) As part of a revival bailout package
c) To reduce tax burden
d) To improve disinvestment proceeds
Q5. After equity conversion, the government owned approximately:
a) 10%
b) 25%
c) 33%
d) 51%
Q6. What is equity dilution?
a) Shareholder dividends being cut
b) Issue of additional equity reducing promoter %
c) Conversion of debt into short-term bonds
d) Buyback of equity by the company
Q7. What does ARPU stand for?
a) Annual Revenue Per Unit
b) Average Revenue Per User
c) Asset Return Performance Utilization
d) Average Risk Premium Utilized
Q8. Which company gained the most from the AGR verdict financially?
a) Vodafone Idea
b) Airtel
c) BSNL
d) Jio
Q9. What could a future tariff hike help improve for Vi?
a) License fees
b) Spectrum allocation
c) Operating profit margin
d) AGR liability repayment
Q10. Which of the following did NOT happen post-government equity conversion?
a) Government became largest shareholder
b) Promoters invested fresh capital
c) Share price fell
d) Strategic investors were explored
Q11. A company with high debt and low ARPU is likely facing:
a) Insolvency risk
b) Regulatory sanctions
c) Price war dominance
d) Foreign exchange mismatch
Q12. What does it imply if your equity % in a company drops despite holding same shares?
a) Insider trading
b) Equity dilution
c) Share lock-in
d) Price-to-book anomaly
Q13. Which term best fits the Government’s Vi equity:
a) Angel investment
b) Anchor allocation
c) Strategic holding
d) Bailout equity
Q14. Vi’s market cap was ₹27,000 crore, and debt was ₹2 lakh crore. What’s the
debt-to-equity ratio?
a) ~2
b) ~5
c) ~7.4
d) ~0.14
Q15. What is the biggest threat to Vi's future viability today?
a) Tariff hike by competitors
b) Delay in 5G rollout
c) Massive debt overhang
d) Re-entry of MTNL
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