Learning by Proxy

Telecom Bankruptcy | Learning by Proxy

Telecom was the ticket to great wealth for governments around the world. Governments were hiring game theorists to determine how to sell air – quite literally. In the case of India, things did not really turn out the way the government had imagined. This hot potato was a creation of the previous BJP government and the current one is left to deal with its consequences.

Surviving Odds

About a decade ago, if you had wanted a mobile connection, you had almost a dozen operators to choose from. The Indian telecom landscape resembled the Indian political landscape with several regional operators such as Aircel and the competition was good for the customer. Tata Docomo brought the prices down to 60p per minute billed every second at 1p per second.

Then followed the 2G scam which saw the withdrawal of 2G licenses to some of the players. Along with that, the prices had fallen so low that it was no longer possible for many of the players to sustain their operations.

Normally when a company caters to B2B as well as B2C customers; the former is meant to bring in the top line (increase revenue figures) and the latter is meant to bolster the bottom line (profits). An individual has little in the form of negotiation power to bring the price down. Curiously, the telecom industry in India was operating in reverse. The consumer business was barely breakeven.

Several mergers followed and Reliance Communications went into bankruptcy.

When the 2G licenses were being auctioned, the government had agreed to defer the cost of the license by taking a percentage of the income that was generated by the companies to whom the licenses were being issued. This was back in 2000 under the Vajpayee government. That became an issue in 2008 when the government decided that it had claims on all kinds of revenue that a telecom company generated including rent and interest. This resulted in ballooning costs. Further, as the case dragged on through the courts for a decade, the amount kept rising and finally, the supreme court sided with the government.

Vodafone was born in India in 2007 through the acquisition of Essar’s Hutch. It was billed as one of the biggest deals in its times. Priced at $19 Billion (greater than WhatsApp) it really was! The Indian government slapped Vodafone with a $1.2 Billion tax for the acquisition retrospectively.

Vodafone grew in India and as the consolidation continued, it eventually became Vodafone-Idea. Two loss-making companies merged into one enormously loss-making company.

The loss at the Supreme Court meant that this new enormously loss-making company owed close to 96,000 Crores ($12 Billion) to the government. While the company wants this figure to be looked at again by the Supreme Court, the court has refused. When a company which is valued at $3 Billion is expected to pay $12 Billion in fees, what do they do?

Vodafone Plc, which owns a 45% stake in the debt-laden Vodafone Idea Limited (VIL), has proposed to offer its stake for free to lenders/financial institutions or to the state-run Bharat Sanchar Nigam Limited (BSNL), on the condition that they take over the ailing telco, Business Standard reported citing banking sources familiar with the matter.

Lenders told the publication if BSNL takes over the company, the dues paid by the merged BSNL-Vi entity would be a book entry.

The development comes less than two months after Aditya Birla Group (ABG) chairman Kumar Mangalam Birla offered to hand over the group’s 27.66% stake in Vi to any public sector or domestic financial institution that can keep the cash-strapped telco afloat.

Source: Economic Times

For the Birlas as well as for Vodafone, this pursuit is starting to resemble a bonfire made out of money. Both have refused to infuse any further capital into Vi which is the name of the combined entity. Even if they infuse money, there is no hope for the entity for the next 20 years. They are offering to give the company away for free to anyone who wants to take it. FREE! FREE! FREE!

It is worth noting that lenders have an exposure of Rs 25,000 crore to Vi. Besides this, the beleaguered telco owes the government Rs 96,270 crore in spectrum payment dues and Rs 58,254 crore in AGR liabilities, of which Rs 7,854 crore has been paid.

Source: Economic Times

Who are the lenders? The very same banks that lent to Kingfisher Airlines and Jet Airways. In my post two weeks ago, I had explained how big the haircut was which the lenders had to take in the Bankruptcy proceedings of Jet Airways. Over 90%. One can expect more of the same if Vodafone and Birla were to step away. The lenders, the government and quite possibly the employees – all of them would be screwed.

To drive the point home, Kumaramangalam Birla resigned from the Board of the company last week.

For the Government

The state-run company, BSNL has one foot in the grave. Reliance has managed to take away most of the rural market from BSNL. If Vi fails, it would turn the telecom sector in India into a duopoly. Airtel and Reliance will be the only two left (apart from BSNL). This would be hugely devastating for customers who are bound to see prices rise. This is easy to pull off when there are only two players.

It will be even more devastating for the government. If Vi were to go into bankruptcy, the government might be able to recover only a very small percentage of the 1.5 Lac Crores that it has piled on as AGR on the company. They would be thankful if they get 10% of it.

But there is a bigger problem. 5G Auction.

The government auctions access to airwaves and they charge companies a fee to access the bandwidth. If there are more players, the value of those airwaves go up and so the government stands to benefit.

If the industry has only 2 players left, they can expect a precipitous drop in pricing of 5G airwaves and this would hurt them a lot in the long run.

Ultimately, the government has managed to land itself in an unenviable position in this case. There would be much to lose in every case. Write off AGR and fees to let Vi survive; Take the free equity and merge it with BSNL; Let the company go into bankruptcy; all options are bad options. Which is the least bad?


Cairn Energy was a poster child of the energy business in India 15 years ago. Today, they have sued India internationally and won a case.

India had made retrospective tax changes and slapped Cairn energy with a Billion dollar tax bill. Vodafone was also slapped with a similar tax bill retrospectively. Cairn Energy had not completely sold its shares in the Indian business to Vedanta so they were forced to cough up $1.2 Billion. Cairn sued, won and the contours of the judgement said,

Cairn Energy started the process of filing applications in various countries to enforce its award even as it held talks with the Indian government to come up with an amicable resolution.

In May, it filed an application in a US court seeking seizure of Air India’s assets, claiming it is the alter ego of the Indian government. It has filed similar applications in Singapore, Canada, Mauritius and the Netherlands.

However, earlier this month, it successfully managed to freeze residential real estate owned by the Indian government in Paris, impacting around 20 centrally located properties valued at more than $20 million. It was the first step in taking ownership of the properties and ensured that the proceeds of any sales would go to Cairn.

In a statement, Cairn Energy reiterated that it prefers an amicable settlement with the Indian government and has submitted a detailed series of proposals to the government since February 2021. “However, in the absence of such a settlement, Cairn must take all necessary legal actions to protect the interests of its international shareholders,” it said.

Source: The Print

Faced with the prospect of public shaming internationally, the government has woken up and decided to make some changes. Changes in legislation will allow it to settle these disputes.

The Indian government on Thursday proposed refunding companies involved in disputes over past tax payments, aiming to settle long-running litigation over sums totaling billions of dollars with companies including Vodafone (VOD.L) and Cairn Energy (CNE.L).

The amendment to the tax law, applicable after approval from both houses of parliament and president, could help settle at least 17 disputes over tax payments amounting to 500 billion rupees ($6.7 billion) or more, analysts said.

Source: Reuters

For a government that claimed to be making ‘doing business in India’ easier, its obstinate adherence to a bad decision made by the previous government and following through on the same to this point seems perplexing at best.

As they say, do not attribute to malice what can be easily explained by incompetence.


Umberto Eco was a novelist who also wrote on many other topics. He wrote about fascism as well. Here are the 14 elements he said any fascist regime has –

  1. The cult of tradition.
  2. The rejection of modernism.
  3. The cult of action for action’s sake.
  4. Dissent is treason.
  5. Fear of diversity.
  6. Stoking the social reservoirs of frustration.
  7. The obsession with conspiracies.
  8. The enemy is both strong and weak.
  9. Life is a permanent state of war.
  10. Elitism in the reverse, or popular elitism.
  11. Everyone is a hero, and death is his reward.
  12. Machismo and misogyny.
  13. Selective populism.
  14. Newspeak is the new lingua franca.

Source: The Wire

Can you think of leaders who adhere to many of these elements?


You just have to listen to this. And you can think of which roles in the list of 14 this adheres to.

Learning by Proxy

China V India – Telecom – Social Network | Learning by Proxy

Every Saturday, I publish this series called ‘Learning by Proxy’. It is a capsule of some of the stuff that I found interesting over the week along with some context to it. I hope you enjoy it.

I was planning to follow-up on some of the topics that I had written the last time. But the geo-politics of it is so interesting, it almost turned into an essay in and of itself. I lost the politics section to it.

Follow Up

See below!


Chris Voss is a former CIA negotiator and the author of the book ‘Never split the difference’. The premise of the book is – when you are negotiating for the life of a hostage you can’t agree to split the difference. You have to get it the way you want it. One of the lessons therein – When negotiating, always give your adversary a way out. If you corner them – expect the unexpected. 

Some context first

China had started down the path of world dominance a few years ago. They decided to use the American (actually British) play of economic dependence = political dominance. They announced this thing called One Belt One Road, which was to be second coming for the Silk Route. They engaged over 130 countries and poured in hundreds of Billions to create infrastructure such as Road, Ports, Airports, etc. Every continent apart from North America was involved. India refused to be a part of it.

Now let us see the corner China has been painted into.

Hong Kong was an itch which has been hard to scratch for the last 3 years. In addition to that Trump and his trade wars had made life difficult. 

The Coronavirus put a new spin on things. Many of these countries that China has lent to are poor Asian and African nations and with Coronavirus ripping up their economies, they have requested loan waivers and renegotiation. 

As the coronavirus spread around the globe, Pakistan’s foreign minister called his counterpart in Beijing last month with an urgent request: The country’s economy was nose-diving, and the government needed to restructure billions of dollars of Chinese loans. […]

With each request, China’s drive to become the developing world’s biggest banker is backfiring. Over the last two decades, it unleashed a global lending spree, showering countries with hundreds of billions of dollars, in an effort to expand its influence and become a political and economic superpower. Borrowers put up ports, mines and other crown jewels as collateral.

Source: New York Times

Pakistan was supposed to keep India in check. They are now broke. The Middle-East is in a financial crisis of its own with oil prices at historic lows. This implies very limited options available to finance terrorism. Therefore, Trump is not going to give money away to Pakistan as liberally as Obama did. 

Further, not agreeing to the cries of the poorer countries will make it seem like it was an engineered Virus. The optics of it all are terrible! 

Trump called it the ‘China Virus’ and has been pressuring WHO to investigate them – WHO acquiesced. India supported the probe into China. China grudgingly agreed.

A pretty deep corner you see. Now for the push back.

China put an end to Hong Kong by passing a law that forever ends Hong Kong’s democracy – at least the way we knew it. With Pakistan now being rendered incompetent, they had to take matters into their own hands. They started trouble in Ladakh and Sikkim. India pushed back. Both sides said they will protect their sovereignty. All good distraction. But then…

Chinese President Xi Jinping on Tuesday ordered the military to scale up the battle preparedness, visualising worst-case scenarios and asked them to resolutely defend the country’s sovereignty.

Source: Economic Times

That escalated fast!

Then Trump tweeted offering to arbitrate between India and China. China changed course and figured this was one more thing they would want the American to stay out of.

On Wednesday tensions between the two nations seemed to de-escalate as China took an apparently conciliatory tone by saying that the situation at the border with India is “overall stable and controllable.”

Source: India Today

While there is a change of tone, satellite pictures show artillery build up on the Chinese side of the border. The US in the meantime is preparing to pass a law rescinding Hong Kong’s trade status.



It was a couple of editions ago that I had mentioned that the truth about the actual economic state of India will emerge post-COVID when nobody is paying attention. It is happening. 

Bank lending to MSME collapsed after 2016 as per RBI data. This during a time when the government claimed to have 7.2% GDP growth rate. Many of the MSMEs are critical suppliers to large industries how could they not want loans? If they saw an opportunity, they would have taken loans to grow. 

While large industries saw their credit expand by Rs 1.73 lakh crore, or at an annual growth rate of 1.9 per cent between April 2016 and March 2020, micro and small industries saw their credit expand by only Rs 10,335 crore, or at a 4-yr CAGR of 0.69 per cent during that period.[…]

The decline in demand for credit by the industry, however, coincides with the decline in the demand in the economy and falling capacity utilisations. The RBI’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the October-December 2019 quarter shows that the capacity utilisation declined to at least 12-year low of 68.6 in the quarter ended December 2019.

Source: Indian Express

Repo Rate

The interest rate is an instrument that is used to stimulate the economy when the times are good, expectations form the future are clear and risk can be estimated. When none of this is clear – the Interest rate becomes merely a number. If you play with it unnecessarily, you diminish your power. Modi placed a historian at the head of the RBI to act as his puppet and the bankers are giving him a lesson. RBI dropper repo rate (the rate at which banks borrow) once again to 4%. An all-time low.

“When a heightened level of risk aversion exists among banks, lower cost of capital alone incrementally will not translate into higher lending in the current situation,” said Sreejith Balasubramanian, an economist at Mumbai-based mutual fund IDFC AMC. “Banks make lending decisions based on their risk appraisal and appetite which is currently low.”

Source: Quartz


Sizzling Telecom

In a world that is locked inside their homes, connectivity is a very valuable resource. It is the only thing that preserves a certain degree of sanity and allows for commerce in whatever form to thrive. Connectivity is unlocking its value.

A couple of editions ago, I had mentioned how Reliance has used Jio to free itself of debt. Also last time I had shared the surprise upswing that Airtel had registered. Airtel is now borrowing a trick or two from the Reliance Playbook. They have raised over a Billion dollar through a stake sale and reduced their debt burden. 

Bharti Airtel’s promoter firm Bharti Telecom raised Rs 8,433 crore on Tuesday, selling 2.75% stake in the telecom major to institutional investors through an accelerated book-building process in the secondary market. With this, the Sunil Bharti Mittal led-Bharti Airtel’s promoters are ostensibly looking to go ‘debt-free’, a path similar to the one chosen by Reliance Industries’ Mukesh Ambani. Bharti Airtel share price traded flat on the BSE on Wednesday. After the sale, the promoter group will continue to own 56.23% in the company.

Source: Financial Express

Also, rumours are that Google is planning to buy into Idea-Vodafone.

Not to be upstaged – Jio Platforms as it continues to raise its Billions announced Microsoft as one of the suitors willing to throw in USD 2 Billion. And they also announced their wishes to list on an international stock exchange. 

Post bagging multi-billion dollar deals from marquee investors in the last one month, Billionaire Mukesh Ambani’s Reliance Industries is said to be now considering an overseas listing of Jio Platforms, according to people aware of the development.

Source: Mint


Social media is an echo chamber and that echo chamber has resulted in far too many countries in the world having right-wing governments. India included. Life is good so long as you are on the right side of the line – White in the US – Hindu in India and so on. Facebook knew what it was doing and why it was wrong. An explosive and incriminating report exposes the upper echelons of the company brushing aside genuine concerns. 

“Our algorithms exploit the human brain’s attraction to divisiveness,” read a slide from a 2018 presentation. “If left unchecked,” it warned, Facebook would feed users “more and more divisive content in an effort to gain user attention & increase time on the platform.” […]

But in the end, Facebook’s interest was fleeting. Mr Zuckerberg and other senior executives largely shelved the basic research, according to previously unreported internal documents and people familiar with the effort, and weakened or blocked efforts to apply its conclusions to Facebook products.

Source: WSJ

The person who made this presentation was the head of the ‘Integrity Team’ at Facebook. The company has none of it.

Twitter has been a haven for trolls permitting harassment at an unprecedented level. It came as a huge surprise when Twitter which is in part responsible for Donald Trump being president decided to flag this tweet at false.

[click on the tweet and open it to see the flag]

The move, which escalates tensions between Washington and Silicon Valley in an election year, was made in response to two Trump tweets over the past 24 hours. The tweets falsely claimed that mail-in ballots are fraudulent. Twitter’s label says, “Get the facts about mail-in ballots,” and redirects users to news articles about Trump’s unsubstantiated claim.

Source: Washington Post

The president threw a fit on Twitter about Twitter. Then announced on Twitter that he would be releasing an Executive Order against Twitter. 

In the meantime, Kellyanne Conway his “Counselor” went on a rant against – guess who? – the head of the Integrity Team of Twitter; Yoel Roth. He has been subjected to a lot of trolling by Republicans and Trump supporters – where else – on Twitter.

Here is a list of all the false claims made by the President of USA to date – all 18,000 of them. –

And Twitter is not backing down!


The Indian Government is using drones to chase away locusts.

These are designed to spray 10-litre of chemicals, along with creating a sound that would disperse the locusts into different areas. “It has successfully contained the movement of locusts in an open area and on the foothills where it was not possible for the usual tractors to make it reach. A detailed assessment of its impact is being studied by the field officers,” said Om Prakash, commissioner, state agriculture department.

Source: Times of India

The Democrats are using the Republican playbook – GOD. Only God can save them now. God is peddling conspiracy theories on Trump!

Go on check out the twitter handle. It’s got a lot more there. About Ivanka’s Shoplifting and much more…

Signing off…