Long way to go

Vodafone Idea will need more capital infusion

Vodafone Idea’s Rs 18,000 crore follow-on public offering (FPO), its last-ditch attempt after failing to raise funds over the past few years, has revived hopes of a turnaround for the cash-strapped telecom services company. The FPO has found significant support from overseas investors, and it has been subscribed nearly seven times, receiving a total of around Rs 90,000 crore in bids. While the successful FPO is a positive and may give Vodafone Idea a fresh lease of life, its impact may be limited, given the quantum of its losses and liabilities. The company was saddled with debt of around Rs 2.15 trillion as on December 31, 2023. This includes deferred spectrum payment obligations of Rs 1.38 trillion and an adjusted gross revenue liability of Rs 69,020 crore due to the government, apart from Rs 6,050 crore due to banks and financial institutions, and Rs 1,660 crore worth of optionally convertible debentures.

The telco has other fronts to worry about as well, the biggest being the subscriber base erosion it has been facing for several months now. The latest data from the Telecom Regulatory Authority of India (Trai) put the Vodafone Idea wireless subscriber base at 221 million as of January. By comparison, Bharti Airtel’s mobile user base was at 382 million and Jio’s at 464 million. Vodafone Idea also has a lot of catching up to do in 5G services as its rivals are way ahead. At the time of announcing the FPO last week, the Vodafone Idea management elaborated on the company’s plans to launch 5G services. It intends to cover 40 per cent of its revenue base with 5G services in the next 24 to 30 months. But the telco’s 5G network order placement will be linked to its capacity to raise funds.

It is clear that the fundraise from the current FPO round will not be enough for the company to invest in 5G and network expansion as well as service its debt. Telecom is a cash-intensive sector where one-time fundraise cannot be a solution for any company. With little financial support coming in recent times from the promoter companies — Vodafone Plc and Aditya Birla Group — the telco needs to bite the bullet and rationalise tariffs. The monthly average revenue per user (Arpu), a benchmark for the health of a company and the sector, needs to go up substantially — not just for Vodafone Idea but also for the telecom industry — to make business feasible. Vodafone Idea’s monthly Arpu stands at Rs 145, much lower than Jio’s Rs 181.7 and Airtel’s Rs 208. India’s telecom Arpu, at Rs 152.50, is a fraction of the global average.

Against this backdrop, a tariff rationalisation could go a long way in ensuring Indian telecom does not have to face a duopoly-like situation. The Union government, which is the largest shareholder in Vodafone Idea, with a 32.19 per cent stake (before FPO) after it converted the telecom company’s accrued interest on adjusted gross revenue arrears into equity in February 2023, has the option to further convert its dues into equity later. But the company must focus on developing a robust business model after a successful FPO. Signs of revival will also enable it to raise more funds for expansion.