Troubled Indian telecom operator Vodafone Idea, which was facing a crisis, is now showing signs of revival after the government announced a slew of incentives to revive the telecom sector.
The company was burdened with a debt of 1.94 trillion rupees (US$25.5 billion) in the July-September quarter, and over the past three years, has lost millions of subscribers.
However, things may be looking up for Vodafone Idea after it hiked tariffs for its prepaid connections by 20-25%. This, plus the government’s reforms package, is expected to improve the company’s cash flows.
Vodafone Idea recently met the deadlines for payment of principal and interest for the holders of its non-convertible debentures. It cleared a tranche of 15 billion rupees that was due in December and needs to pay another 45 billion rupees toward the redemption of debentures by February 2022.
The cash-strapped telecom company is now targeting a four-fold jump in its annual capital expenditure to $2 billion to take on its rivals Bharti Airtel and Reliance Jio. At a recent investors call the company said equity funding, including from promoters, was on the cards.
This is indeed a departure from the recent stand taken by the promoters of this joint venture in the past. Both Vodafone Plc CEO Nick Read and Vodafone Idea chief Kumar Mangalam Birla had ruled out fresh funding as they feared the company was no longer a going concern.
In fact, Birla even offered his share to the government or any other state-owned company to keep Vodafone Idea afloat.
Another major concern has been subscriber desertions. In the 2020 calendar year, out of the four telecom operators (including state-owned Bharat Sanchar Nigam Limited), only Vodafone Idea’s customer base registered a decline.
According to telecom watchdog the Telecom Regulatory Authority of India, Vodafone Idea lost more than one million subscribers during September.
The company, however, has been narrowing its losses every quarter. In the January-March quarter of 2020, it posted a loss of 738 billion rupees, the highest quarterly loss by any Indian company. But since then its finances have been showing signs of improvement and now its losses are in the range of 70 billion rupees.
Vodafone Idea has been conducting 5G trials at various parts of the country using Ericsson equipment. The Indian government is likely to hold 5G spectrum auctions by July and the telecom department may submit its pricing recommendations by March.