The government’s reform package for the telecom sector, announced last year, had brought a ray of hope for Vo­dafone Idea Limited (Vi), which has been struggling to remain afloat in the Indian market. In a bid to pare debt and free up cash to un­dertake network investments, Vi had opted for four years of deferment for both spectrum and adjusted gross revenue (AGR) dues in October 2021. Fur­th­er, in January 2022, the company appro­v­ed the upfront conversion of the full am­ount of interest arising due to this deferment into government equity, making the government the largest shareholder in Vi with a 35.8 per cent stake. These measures, the company believes, will provide short-term liquidity relief and enable it to remain competitive in the industry. However, a closer look reveals that the challenge of bringing the operator out of the woods could be much greater. During the quarter ended December 2021, the op­e­ra­tor’s financial po­sition continued to be in the red, with losses widening to Rs 72.31 billion from Rs 45.32 billion during the same period in 2020-21. Meanwhile, its re­venue from ope­rations dropped by 10.8 per cent, from Rs 108.94 billion to Rs 97.17 billion. The to­­tal gross debt (excluding le­a­se li­a­bilities and including interest accrued but not due) stood at Rs 1,989.8 billion, co­mprising de­fe­rred spectrum payment obligations of Rs 1,113 billion, an AGR liability of Rs 646.2 billion, and debt from banks and financial institutions of Rs 230.6 billion.

Fresh investments key to revival

Vi is in dire need of a large funds infusion to help it expand its 4G network footprint and acquire 5G airwaves in the next round of spectrum auctions, scheduled this year. However, the operator has failed to secure any fresh investments from external in­vestors so far. Even Vi’s promoters, including the Aditya Birla Group and the UK-based Vodafone Group, have not infused any fresh capital into the company, a widely anticipated move since the government took a majority equity stake in the operator. The company’s management has not sh­ared any concrete details on its capital expenditure plans or the timeline of the next fundraiser. During the quarter ended December 2021, Vi’s capex stood at Rs 10.5 billion as against Rs 13 billion in the quarter ended September 2021. With no fresh investments in sight, the operator expects to drive its capex plans solely by depending on higher cash flow through tariff hikes and interest savings due to the government’s reform package.

Meanwhile, Bharti Airtel has been on a fundraising spree. Last year, Airtel’s board approved raising Rs 210 billion through a ri­­ghts issue. Then, in January 2022, Airtel secured a $1 billion investment from Goo­gle, of which $700 million will be for ac­q­ui­­sition of a 1.28 per cent stake in the com­pany while $300 million will be in­ves­ted over the next five years by Google in commercial arrangements with Airtel in the areas of affordable mobile devices, 5G network and cloud. Recently, Airtel’s board approved the raising of more funds through a preferential share issue to investors other than its promoters.

More tariff hikes needed to shore up ARPUs

Following the tariff hikes undertaken by Bharti Airtel in July 2021, Vi also increas­ed its prices to improve its average revenue per user (ARPU). The operator first in­cr­ea­sed tariffs on entry-level prepaid plans, from Rs 49 to Rs 79, and certain post-paid plans across the retail and enterprise segments, during the quarter ended Septem­ber 2021. Further, in November 2021, Vi increased prepaid tariffs across all price points, including unlimited plans and combo vouchers, moving the entry-level prepaid plan to Rs 99. Consequently, the operator’s ARPU improved from Rs 109 in the quarter ended September 2021 to Rs 115 in the quarter ended December 2021. The operator expects that the impact of the tariff revisions will be reflected even more in the ARPU figures of the quarter ended March 2022.

Experts believe that another round of tariff hikes is in the offing, as the current prices are still unsustainable for the industry. As before, Bharti Airtel is likely to take the lead in raising tariffs to help push its ARPU to Rs 200 in 2022. Vi has also hinted towards a further upward revision in tariffs in late 2022 or early 2023, depending on the pace at which the impact of the last tariff hike gets reflected in ARPU numbers.

Decline in the pace of subscriber churn offers hope

Amidst the not-so-encouraging financial results, a silver lining for Vi has been the recent dip in the pace of its subscriber churn. As per the Telecom Regu­latory Au­thority of India, Vi lost around 1.9 million subscribers during October and Novem­ber 2021, as compared to 2.9 million during the same period in 2020. In fact, the operator’s 4G subscriber base has continued to grow, with 0.8 million new 4G customers being brought into its fold in the quarter ended December 2021, taking its 4G subscriber base to 117 million. Fur­ther, Vi’s data usage per 4G subscriber has also increased from around 12 GB per month to around 14 GB per month on a year-on-year basis.

Vi is focusing on ramping up its digital content offerings to increase 4G subscriber additions and drive-up data usage. It has recently integrated its movies and TV app content with the primary Vi app to allow easier access to digital content. Fur­ther, it has also launched a music service in partnership with Hungama Music on the Vi app for all the subscribers. The operator plans to unveil a slew of other digital offerings over the next few months.

Meanwhile, cost optimisation has em­erged as a key focus area for the company, as it looks to clean up its books. The company claims that it has achieved its targeted merger opex synergies of Rs 84 billion and has recorded around 90 per cent annualised savings on a run-rate basis as of the quarter ended December 2021, against the target of Rs 40 billion.


The government’s recent reform measures have given Vi a temporary liquidity cushion, which will help it remain afloat for now. But its future will depend on its ability to pare debt while making fresh investments in 4G expansion and 5G roll-out. For this, the operator has to convince its po­tential investors and subscribers of the possibility of a revival. Another round of tariff hikes may be imminent, given that, according to industry estimates, Vi needs to more than double its current monthly ARPU to about Rs 240 by 2025-26 to repay its dues to the government, assuming it is able to retain 260 million subscribers.

Vi’s distress in recent years has had an impact on the industry at large. The company now has an opportunity to work to­wa­rds a turnaround. Vi’s sustainability would also ensure that the Indian telecom market remains a competitive 3+1-player field.