Hope for Vodafone Idea: The telco must quickly raise capital

Vodafone Idea (Vi) has signalled to the industry and lenders that it’s upping its game with industrialist Kumar Mangalam Birla returning as the telco’s non-executive chairman. While Mr Birla has attempted to assuage fears that the telecom sector may turn into a duopoly, the struggling telco, with 49 per cent government shareholding, is yet to enthuse confidence in banks and financial institutions. Its promoters, the United Kingdom-based Vodafone plc and the Aditya Birla group, with a combined holding of 25.64 per cent, had earlier indicated that good money should not be put after bad while seeking government intervention. Now, with the government offering a series of benefits and concessions, including a comprehensive review of the dues linked to Vi’s adjusted gross revenue (AGR) amount and converting some of the telco’s dues into its own equity, Vi’s promoters must show they have skin in the game.

 

In recent comments to the media, Mr Birla said that Vi’s operational metrics were beginning to show tangible improvement and that the momentum would be supported by a $5 billion capex plan. He also expressed hope that the revival of the company would help sustain a “healthy three-player private market’’. But, banks have reportedly not taken a decision on the ₹35,000 crore loan request from Vi, while maintaining that the telecom company must increase its engagement with them. The moot point is that the lenders want guarantees and commitments from the promoters for infusing additional capital in the case of default. There’s no evidence so far on Vi making any assurance of that nature. Even after the reduction of Vi’s AGR dues by 27 per cent, paring it down to ₹64,046 crore from ₹87,695 crore, the telecom operator needs to make significant payments for deferred spectrum dues in the next three years. Its AGR dues are payable in six instalments over six years starting FY36, which is a big relief.

 

To the bankers, Vi’s debt, at around ₹2.1 trillion, poses a challenge. Therefore, they insist on the promoters’ guarantees before granting more funds. The operator, considered a top player in the market till a few years ago, is facing tough competition from Reliance Jio, and Bharti Airtel in terms of growth in subscriber numbers and monthly average revenue per user (Arpu). At a time when technology advancements drive the pace across sectors, Vi was a late starter in offering 5G service to its customers. As the telecom sector expands into areas such as 6G and satellite broadband, Vi needs a credible long-term vision that can inspire user confidence and reassure lenders.

 

The government has supported Vi in many ways so that the sector does not slip into a duopoly. It must now try to fix the systemic problems through a review of levies and duties to reduce the burden on the operators, which constantly need to invest in new technology. As for Vi, even as the optics are positive right now, the telco must act to translate the right words into concrete reality. It made several attempts in the past few years to raise funds, but should now be working on this front more actively. Rationalising tariffs is another step that the company and the industry should explore while enhancing the quality of service. This will provide a more secure telecom future in India.