Vodafone-Idea connection: Pedestrians talk on their mobile phones as they walk past a Vodafone-Idea mobile network service provider store in Mumbai | Photo credit: Puneet Paranjpe
The fate of India’s third largest telco, Vodafone-Idea, hangs in the balance. In January 2022, the cash-strapped telco had agreed to clear its adjusted gross revenue (AGR) related dues amounting to ₹16,000 crore Government equity. With the move, the government would have become the largest shareholder with 33% stake, bringing down the promoter’s stake to 50%. However, despite the cabinet’s nod, the conversion is yet to be completed. The delay has led to a serious shortage of funds vodafone-idea, Whereas Government Wants promoters to infuse capital before taking stake, promoters – Vodafone Group Plc and Aditya Birla Group – are not willing to put in more money.
The financial crisis of Indian Telecom is due to two reasons. One, intense competition has led to tariff wars and reduced the market from 15 players in 2010 to only four currently. If Vodafone-Idea collapses, the sector would effectively become a monopoly. Two, the AGR dues have put further pressure on the pockets of old players like Bharti Airtel and Vodafone-Idea. AGR means the dues related to license and spectrum charges which are paid by the operators on the basis of revenue paid to the Centre.
Vodafone was the second largest player for the most part of the last decade. With the merger, Vodafone-Idea grabbed the top spot in 2018 with 35.6% wireless subscriber market share. But since then, it has been losing its share and is now at the third position. Jio has emerged as the market leader with 37%. chart 1 Shows the market share (in %) of service providers in the wireless subscriber segment.
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In the last four calendar years, Vodafone-Idea has lost over 173 million customers. From a high of 418.7 million in 2018, its subscriber base was slated to grow to 245.6 million by October 2022. While Airtel also lost customers in 2019, it has been growing since 2020 and has gained more customers than Jio on a yearly basis. chart 2 Shows the net subscribers gained or lost by the telecom operator annually.
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Apart from losing customers, Vodafone-Idea’s average revenue per user (ARPU) per month has also failed to keep pace with its rivals. Jio’s entry in 2016 disrupted the markets with cheap data and low tariffs, leading to a decline in ARPU. But the increase in tariffs since FY20 has pushed up the ARPUs. Here also Airtel remains ahead of Jio. In FY23, Airtel’s ARPU stood at Rs. 187 as compared to Jio’s ₹177 while Vodafone-Idea lagged behind with ₹130. chart 3 Shows average revenue (in ₹) earned per user per month by private service providers in wireless services.
Dwindling subscriber base and cheap tariffs have hit Vodafone-Idea’s revenue and pending AGR dues and spectrum charges have increased its debt and further increased its expenses. Vodafone-Idea has made losses in every financial year since the merger. While its income from operations declined, its expenses increased. About a third of its expenses are used to cover finance costs – the costs incurred by a company to borrow money. chart 4 Shows profit and loss made by Vodafone-Idea in ₹ crore.
chart 5 Shows Vodafone-Idea’s income and expenses from operations in ₹ crores.
As of the quarter ending September 2023, Vodafone-Idea had gross debt of ₹2,203.2 billion, while its cash and cash equivalents stood at only ₹1.9 billion. The telco’s gross debt has increased significantly since FY19, while its cash balance remains low. A major part of its debt is owed to the government in the form of spectrum and AGR dues. chart 6 Shows gross debt (left axis) and cash and cash equivalents (right axis) in ₹ billion.
nihalani.j@thehindu.co.in
Source: Institutional Report of Telecom Regulatory Authority of India, BSE and Vodafone-Idea
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