The telecom services market in India has changed over the past five months due to a key legal development. The market had become an effective duopoly with Reliance Jio and Bharti Airtel holding an 80 per cent market share. The third largest player, Vodafone Idea Limited (Vi) was drowning in debt, while Bharat Sanchar Nigam Limited (BSNL) was also struggling.

In October 2025, Vi received some respite from the Supreme Court, which allowed the government to reassess Vi’s adjusted gross revenue (AGR). Subsequently, in January 2026, the government followed through with a recalculation that gives the company some breathing space by allowing 10 years of manageable payments. Vi can now implement a capex plan that enables it to try and close the distance between it and the two market leaders.

As a result, the mobile services market could turn into an effective three-way contest. In fact, the AGR relief brings the government closer to its preference for a four-player market. The government now holds a 49 per cent stake in Vi (and 100 per cent in BSNL) as a result of prior bailouts, and it may eventually receive concrete returns for its forbearance if the company returns to profitability.

In the short term, survival may not be an issue, and Vi’s 193 million subscriber base will have an assurance of service continuity. But while Vi now has a fighting chance to return to financial stability and secure market share, it is still well behind the leading pair. It will have to plan and execute its strategy well to make up lost ground.

A committee constituted by the Department of Telecommunications is working out the details, but the baseline is that Vi’s AGR dues (principal + interest + penalty and interest on penalty) for the period 2006-07 to 2018-19 will be frozen as of December 31, 2025. This amounts to around Rs 877 billion (approximately $9.7 billion).

Post the judgment and the government’s recalculations, the company will have to pay a maximum of Rs 1.24 billion annually over the next six years from March 2026 to March 2031. Between March 2032 and March 2035, it will pay Rs 1 billion annually over four years, with the remaining AGR dues to be paid in equal instalments annually from March 2036 to March 2041. The committee will also reassess the AGR dues, fixing the amount that is to be repaid between March 2036 and March 2041.

Prior to the judgment, Vi’s AGR payments had been under moratorium for four years, with annual repayments of around Rs 160 billion scheduled to resume from March 2026. By reducing the payment to Rs 1.24 billion and by freezing the levy of further interest, Vi will achieve around Rs 65 billion-Rs 70 billion of annual interest savings, according to its own calculations.

Vi has already raised equity and it has been shopping around for a debt raising to help fund capex. The management is looking at Rs 250 billion in bank debt and Rs 100 billion in non-bank funding to support future capex requirements, with the rest coming from internal accruals. It raised Rs 33 billion via non-convertible debentures through a subsidiary in 2025. The promoters (Vodafone Plc and the Aditya Birla Group) will not be subscribing to more equity at the moment.

While it was struggling to service its AGR overhang, Vi was unable to invest in capex, which meant that it fell behind in terms of network roll-out. It has around a 15 per cent revenue market share and has lost about 5 per cent over the past three years, as it has been unable to allocate sufficient capex to upgrade networks. Vi is starting to offer 5G services late and has yet to upgrade parts of its network to 4G, while Airtel and Jio have already rolled out 5G networks across the country.

Now, Vi has earmarked Rs 450 billion of cumulative network capex over the next three years, targeting both 4G expansions and 5G roll-outs across priority circles. This will help curb subscriber losses and raise its average revenue per user (ARPU) at a faster clip. Vi has a low proportion of 4G/5G users compared to Jio and Airtel and hence, it could accelerate ARPUs if a substantial chunk of existing 3G and 2G users upgrade their handsets and become data consumers.

All the private operators have been able to make calibrated tariff hikes in the recent past, which has enabled them to increase their ARPUs. Vi could benefit from faster migration to data, rising usage and holding on to its current subscriber base, even if it cannot claw back market share.

However, the game of catch-up will not be easy since Airtel and Jio are far ahead on many counts. Jio had 515 million subscribers at an ARPU of Rs 213-Rs 214 as of December 2025. Airtel reported an ARPU of Rs 259 and 466 million Indian subscribers in the same period. In contrast, Vi had an ARPU of Rs 186 and 193 million subscribers in total. Vi has consistently lost subscribers for several years as it fell behind in terms of broadband coverage and network quality.

Jio’s entire subscriber base is either on 4G or 5G, and Airtel has 315 million 4G and 5G users, while Vi has only around 128 million broadband users and about 29 million post-paid users. Jio and Airtel also include fixed wireless access (FWA) in these numbers, whereas Vi does not offer FWA. Post-paid users generate higher ARPU, and the conversion of a 3G/2G user into a data-centric 4G/5G user also results in a sharp rise in ARPU. Vi will be hoping for high conversion rates.

Apart from AGR, where it has received relief, Vi has spectrum repayments starting 2027-28. Its bank debt is around Rs 11.3 billion, and it has about Rs 490 billion in total spectrum liability (including interest on deferred spectrum payments). Between FY 2029 and FY 2044, spectrum obligations would reach about Rs 700 billion, assuming some spectrum is not renewed. It will have to service those payments, as well as roll out networks and pay for AGR. Again, this is a tough task, and it implies that the company will be able to maintain high growth in revenues, profits and free cash flows.

The company’s guidance as of January 2026 is that it will aim to triple operating profits (or earnings before interest, taxes, depreciation and amortisation [EBITDA]) by 2028-29. Assuming it can maintain or improve margins, it would still have to grow revenues at a CAGR of around 15 per cent or more. Looking at peers, Airtel and Jio both have around 15 per cent revenue CAGR historically, while Vi has a much lower CAGR. So it will have to accelerate both growth rates and margins. ARPUs would have to rise considerably as well, unless the company can somehow claw back market share and win or convert a high number of new broadband subscribers.

Vi’s revenues and EBITDA met consensus in the third quarter (Q3) of FY 2026 (October-December 2025), but it suffered a net loss of 3.8 million subscribers. The mobile data subscriber base (4G and 5G) saw net additions of 0.7 million to reach a total of  128.5 million, while post-paid subscribers reached 28.8 million (an increase of 0.9 million quarter on quarter).

Revenue and EBITDA each grew 2 per cent year on year, with operating margins at 42.5 per cent, revenue growth at Rs 113 billion, and EBITDA at Rs 48 billion. The Q3 capex was Rs 22.5 billion, and the cumulative capex over the past six quarters was Rs 152.5 billion. Net losses, adjusted for provision write-backs and the one-time impact of the labour code, were Rs 64 billion. Due to the AGR relief, gross debt fell 8 per cent year on year to Rs 2,098 billion. Cash generation was Rs 23.6 billion in Q3 FY 2026, up 5 per cent quarter on quarter.

In its recent earnings calls, the management has highlighted committing Rs 450 billion in additional capex through the next three years towards network roll-outs. The capex would be skewed in terms of higher spends in the first two years.

Vi hopes to regain 4G coverage parity in 17 priority circles, and to convert 2G to 4G in the other five circles.  In urban areas, it intends to roll out 5G (it has already covered 43 cities and intends to cover another 100 cities with 5G), and it aims to offer FWA, and maybe tie up for satcom service offers. Vi is aiming for sustained subscriber addition, double-digit revenue growth and triple EBITDA. But while Vi has seen a slowdown in the rate at which it is losing subscribers, it has not seen net additions. It is also seeking to increase its penetration in the enterprise market, including hyperscalers, banks and digital players.

It is no longer an existential crisis for the company, though there is a big question mark about its ability to regain lost market share. Looking at the broader picture, a services market where three, or ideally four, entities (assuming BSNL can rebound) are serious players is much better for the overall economy. Competition fosters innovation and keeps costs down for users. Given the positive externalities flowing from telecom in an increasingly digital economy, India’s need for cost-effective innovation is high.

Devangshu Datta