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Vodafone Idea has raised some funds, but that may not be enough for it to compete with its peers, Bharti Airtel and Reliance Jio
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Boosting 4G network coverage and launching 5G services is the need of the hour
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Vodafone Idea may need to raise funds several times to clear its $25.79 billion debt
India’s third-largest service provider, Vodafone Idea, is in the news for finally raising some funds through a mix of equity and debt. It plans to raise INR 180 billion ($2.15 billion) through a Follow-on Public Offer (FPO) and another INR 250 billion ($2.99 billion) through debt. In addition, the telco has already approved INR 2,0750 million ($249 million) from a promoter entity through a preferential share issue.
These are positive developments for Vodafone Idea, which has been struggling financially for several years now. Even so, the road ahead is anything but easy, as the service provider has witnessed its subscriber base and market share dwindle in the last few years.
Vodafone Idea’s subscriber base dropped below the 200 million mark to touch 193.85 million for the first time in February earlier this year. India’s top two telcos, Reliance Jio and Bharti Airtel, have benefitted at Vodafone Idea's expense.
“Both Airtel and Jio capitalized on Vodafone Idea's subscriber losses, gaining significant ground. Despite the recent launch of its FPO, which is a positive step towards meeting network spending, Vodafone Idea is still expected to face a notable gap in 5G coverage compared to its larger peers,” says Arun Menon, Principal Analyst, MTN Consulting.
Though Vodafone Idea has conducted trials, it has yet to launch 5G, while Airtel and Jio launched commercial 5G services way back in 2022. Vodafone Idea plans to commercially introduce 5G in another six to nine months.
Growing ARPU and managing debt pile
Moving ahead, the service provider must not only stem the weakening subscriber base but also make an effort to boost Average Revenue Per User (ARPU).
“Vodafone Idea must halt the continuous decline in its subscriber base by making substantial capital investments in expanding network coverage and capacity for 4G, as well as expediting the long-awaited rollout of 5G,” says Menon.
Vodafone Idea realizes this, and out of the INR 127.5 billion earmarked for capital expenditure, it has decided to invest INR 70.3 billion ($0.84 billion) in expanding 4G coverage and the rest of INR 57.2 billion ($0.68 billion) on 5G.
“Additionally, Vodafone Idea needs to focus on acquiring higher-value customers, which could be accomplished by boosting its Average Revenue Per User (ARPU). Vodafone Idea's ARPU is yet to surpass the INR 150 ($1.79) threshold, significantly lagging the likes of Jio and Airtel, whose ARPU figures stand at INR 181 ($2.17) and INR 208 ($2.49), respectively. But even with a tariff hike, Vodafone Idea’s peers are positioned to gain as they have greater resources to invest in acquiring customers,” adds Menon.
Even though it has raised some funds, it faces the massive task of repaying its debt of INR 2150 billion ($25.79 billion) as of December 2023.
“A significant portion of Vodafone Idea's total debt comprises deferred spectrum payment obligations of INR 1,380 billion ($16.55 billion) and AGR dues of INR 690.2 billion ($8.27 billion), most of which are owed to the government. This indicates that Vodafone Idea will require significant additional fundraising in the future to manage the debt pile on its balance sheet,” says Menon.