Why Vodafone Idea is not out of the woods yet despite AGR relief

Our Bureau Mumbai | Updated on December 01, 2020 Published on December 01, 2020

Telecom major’s plan to raise about $3.4 b is unlikely to restore its competitive position and reverse subscriber losses: Fitch report

Vodafone Idea, which has now re-branded to Vi, is rapidly losing market share as rival operators press on with investments into network rollout and upgradation. The operators has been consistently losing subscribers over the last few quarters.

“Vodafone Idea, is rapidly losing market share given its weak balance sheet and limited financial flexibility. We believe that Vodafone Idea could lose 50-70 million subscribers in the next 12 months, after losing about 155 million subscribers in the last nine quarters,” Fitch Ratings said in a report.

It said Reliance Jio could gain more than half of Vodafone Idea’s subscriber losses, with the balance going to Bharti. In Q2FY21 Bharti added 14 million subscribers, double than that of Jio’s seven million. The decline for Vi comes even as the operator is desperately trying to stay afloat. The company plans to raise ₹25,000 crore to fund its network expansion. But this is much lower compared to what rival operators are pumping in.

“We believe that Vodafone Idea’s plan to raise about $3.4 billion through a mix of equity and debt, is unlikely to restore its competitive position and reverse subscriber losses, as the amount would be insufficient for capex,” Fitch added.

The capital expenditure on network is in addition to the Adjusted Gross Revenue (AGR) dues that has to be paid to the Government. It has so far paid about $1.1 billion of its total unpaid dues of $8.9 billion it is required to pay to the DOT for the AGR dues dispute. Although the operator has 10 years to pay the dues, it will need nearly $800 million every year on this account alone.

Corpus for more spectrum

Vi will also have to create a corpus to buy more spectrum in the next round of auctions likely to happen next year. While Reliance Jio has made its intention known to bid for more spectrum, Vi may find it difficult to participate in a bidding process in view of the already large debt of over ₹1 lakh crore.

One option could be to increase the tariff further so that it gets an average revenue per user (ARPU) of around ₹300 per month. That’s 1.5 times what it gets at present. That looks unlikely given that rival Reliance Jio has managed to improve its overall debt position and is under no pressure to increase tariffs. Vi will be hoping that the telecom regulator TRAI will agree to set a floor price for mobile tariffs. Once a floor price comes in, the tariffs could go up by 25-30 per cent. The other thing to do would be to sell equity stake to a large financially strong player who will be willing to bring big investments. If these two things don't happen then the survival of Vodafone Idea beyond FY22 looks doubtful.

The operator continues to be optimistic about its future. “While we continue to face Covid-19 induced challenges, Q2FY21 showed signs of recovery with a gradual improvement in economic activities. We are executing on our strategy and our cost optimization exercise has already started to yield incremental savings. We have also initiated a fund raising exercise to support our strategic intent. Further, we continue to interact with the government seeking long-term solutions to the critical challenges which the industry faces,” Vodafone Idea Ltd's Managing Director and Chief Executive Officer, Ravinder Takkar, had said after the second quarter results.

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Published on December 01, 2020
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