Kumar Mangalam Birla said they would shut Vodafone Idea if they don't get relief from the government. Speaking to CNBC-TV18’s Shereen Bhan at the Hindustan Times Leadership Summit in New Delhi, he said it is important for the government to find a solution for the telecom sector.

Rajiv Sharma of SBICAP Securities is of the view that it was a very straight-forward statement from Mr Birla. It tells us the exact situation. He said the house had published a report post the tariff hikes highlighting that mere hikes would not be enough. Hikes would allow the companies to barely pay the adjusted gross revenue (AGR) dues over 10 equated instalments, assuming they were not losing subscribers which is a function of capex.

However, if there is no money to invest in capex then they are bound to lose subscribers. "So the tariff hikes don’t help and they need a relief from the government,” said Sharma.

“There is one more issue which is related to the AGR and the license-fee payments on companies which are non-telecom companies but have some kind of telecom license on operations. There, the penalties are huge if they also have to follow the same pattern. Something has to happen but we are just a month away from the pay-out. We are all hoping but we have not seen anything concrete so far," he said, hoping that the statement by Mr Birla makes a deeper impact and there is some action.

In case Vodafone Idea were to shut shop then there are several consequences, said Sharma. "First is job-losses. Second is tower company business model comes under question. Third, there wouldl be questions around innovation, tele-density disruption,” said Sharma, adding that both Bharti and Jio were not straight forward ready to absorb the entire subscriber base of Vodafone Idea, particularly the 2G subscribers, which only Bharti could address.

“Given that this whole narrative around slowdown and growth, there has to be a lot of thought around not only sustainability but where the US-China economies are on 5G, the digital start-up thing which the government has in mind, can it be supported without adequate telecom infrastructure and capex. So a lot of big picture questions need to be addressed over the next one month,” said Sharma.

From a stock perspective, he said, the house has a buy on Bharti Airtel and believe that with the no-relief scenario and the proposed fund raising, Bharti can still manage to sail through these tough times and keep investing little bit in the networks. "Market seems to be factoring in a kind of two-player scenario but not fully," he said

According to him, even if some relief comes in so much that Vodafone-Idea is able to repay the AGR dues and not able to invest in network, Bharti would gain on subscribers gradually and so will Jio. So both Jio and Bharti still look good and we have a sell on Vodafone Idea,” Sharma noted.

Disclosure:

RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.