India’s Vodafone Idea looking to raise funds, begins restructuring

Vodafone Idea
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India’s ailing telecom operator Vodafone Idea said that it is looking at raising funds to support its operations which have taken a massive hit over the last 12-15 months. The company is currently awaiting the Supreme Court’s judgment on the adjusted gross revenue (AGR) payments issue.

 “We are definitely looking at opportunities for raising funds…we are waiting for a conclusion as far as the AGR matter is concerned, which will give us clarity on what kind of funding requirements we have,” Akshaya Moondra, chief financial officer of Vodafone Idea said during an earnings call.

Vodafone Idea has already expressed its interest to monetise its 11.15% stake in Indus Towers after its merger with Bharti Infratel. It is also open to selling its optic fibre and data centers to raise funds.

Interestingly, Google is reportedly in talks to buy a stake in Vodafone Idea.

Vodafone Idea reported a loss of Rs 25,460 crore ($3.44 billion) for the first quarter. The company’s performance was hurt by a one-time charge related to statutory dues and continued loss of subscribers–over 11 million. 

Vodafone idea has already begun a restructuring drive to save Rs 4,000 crore ($540.54 million) on an annualized basis over the next 18 months. Under this exercise, the telco is cutting IT costs and is reducing distribution costs by pushing digital recharge, as well as automating functions such as customer service.

“The other initiatives include central design planning and major network functions, center of excellence for customer services focus on digital across functions and all processes,” Ravinder Takkar, managing director of VIL said on various measures to bring cost benefits.

Moondra said that IT integration will be a major source of cost reduction for the telecom operator.

On the network side, the telecom operator is actively involved with OpenRAN vendors for commercial deployment at a larger scale. This also comes at a time when its traditional vendor partners Ericsson and Nokia have reportedly stopped supplies of new equipment such as massive mimo and RAN in the absence of any bank guarantee.

Vodafone Idea needs to pay about Rs 50,400 crore ($6.81 billion) more to the Department of Telecom in AGR-related dues including spectrum license fee, spectrum usage charges, interest, and penalties.

The telco has sought a staggered payment option to clear these dues over a period of 15 years.

The company is focusing on expanding 4G coverage and capacity in its 16 priority circles. India has 22 telecom circles across the country.

“These 16 circles contribute to around 94% of our revenues and around 87% of industry revenues,” Takkar said.

Weak liquidity position has restricted its ability to invest in networks, which has led the telco to focus on 16 out of 22 circles.

“This could limit its growth and further lose competitive position,” Motilal Oswal Institutional Equities said in a note on Monday.

During the call, Takkar also rejected Mukesh Ambani’s call to discontinue 2G services in the country. He said that 2G is an efficient and a low-cost service option for customers who don’t require smartphones, or the elderly, who still prefer feature phones

“That 2G services need to be stopped (in India) is a completely wrong message that’s going out in the market…about 15% of mobile subscribers in many international markets, even where 5G is about to be launched, remain on 2G as it’s an efficient, low-cost service option,” said Takkar.

Vodafone Idea also called for a tariff hike in the country to increase industry average revenue per user (ARPU). It said that an ARPU level of Rs 230-250  ($3.3) is reasonable for the industry to recover the cost of capital adequately and make some surplus over that.

The operator’s ARPU fell 5.8% to Rs 114 ($1.2) in the quarter.

“VIL is the weakest private telco. The company continues to face losses (now slipping into negative net worth) and risk of eventual bankruptcy. While an AGR extension could be a short term breather, its survival hinges on a decent-sized capital infusion and industry reforms such as floor tariff and other reliefs,” brokerage firm ICICI Securities said in a note on Monday.

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