Start of a new era?, Telecom News, ET Telecom
Vodafone Idea has finally succeeded in securing significant financing, enabling it with ammunition to fight back and protect its turf in a fiercely competitive Indian telecom market.
Will this be the dawn of a new chapter for Vodafone Idea? Once the leading telecom player following the 2018 merger of Vodafone India and Idea Cellular, it now grapples with survival challenges.
“It (the funding) offers a decent and timely infusion to clear debt, and invest towards building the long-delayed 5G network to remain competitive vs Jio and Airtel. However, it remains to be seen how much the government aligns with Vi’s long term strategy to invest and remain competitive,” Neil Shah, Vice President, Counterpoint Research said.
Of the Rs 18,000 crore raised via the follow on public offer (FPO), over Rs 12,000 crore has been set aside for 4G expansion and 5G rollouts. Of this, Rs 5,720 crore will go towards 5G rollouts with 4G expansion being a priority for the telco. The next plan is to go for a Rs 25,000 debt issue. Once fully done, this will enable the firm to meet capital expenditure requirements for expansion and reduce subscriber churn, improving revenues.
Through the FPO, Vodafone Idea has put concerns of its survival and competitiveness away but it’s not viable yet, as per a Ambit Capital report. A significant rise in mobile tariffs will be necessary following the fundraising to help Vodafone Idea in navigating the present crisis seamlessly. Despite 5G investments – high capital expenditure by telecom players including Jio and Airtel, the tariffs have remained unchanged. Mobile tariffs were raised by around 20 % in December 2021. The concerns have been put away till September 2025, when the government’s moratorium of spectrum/AGR payments ends. But it owes the government Rs 271 billion and Rs 411 billion in FY26 and FY27. It will take more funds and a stronger network and revenue flow before it can come out of the dark.
Vi has also been paring debt, now at less than Rs 4,500 crore. But overall, net debt widened to Rs 2.14 lakh crore in the December quarter, most of which are statutory dues, with cash and cash equivalents at Rs 318.9 crore. The loss-making telco has been losing subscribers – its gross mobile user base shrank by another 1.02 million to 222.5 million as of February-end. In comparison, market leader Jio added 3.59 million and Airtel gained 1.53 million users in February ending the month at 467.48 million and 384.01 million subscribers, respectively.
Shah said Vi could focus on enterprise, IoT business as well and carve out a niche and potentially partner with other conglomerates such as Tata, Adani to gain prominence and market share.
India is the fastest-growing mobile market globally, with data consumption skyrocketing. However, telecom providers face challenges with low average revenue per user (ARPU) due to low tariffs. While telcos talk about increasing mobile tariffs, there hasn’t been substantial changes in average tariffs, only limited to minor adjustments in prepaid plans.
Vi’s future hinges on the implementation of mobile tariff hike and the expeditious utilization of funds to expand its current network capacity. However, it is still a long road ahead for the company.
