A lifeline or mere respite?

The mega FPO offers a ray of hope for Vi, but daunting challenges, including debt and fierce competition, loom as it strives for a resurgence against Jio and Airtel.

When Vodafone Idea (Vi) unveiled its Follow-on Public Offer (FPO) on the National Stock Exchange of India, it marked the dawn of what Kumar Mangalam Birla called Vi 2.0. Yet, the crucial question lingers: Can this infusion of capital breathe new life into Vi’s fortunes in India’s cutthroat telecom arena?

A Successful FPO Haul

Vi recently completed an FPO, amassing a significant Rs 180 billion, making it India’s largest FPO to date. Just before the launch, it secured an additional Rs 54 billion from anchor investors such as GQG Partners, Fidelity, and Motilal Oswal.

Vi has grappled with a myriad of challenges over the years. Fierce competition from Reliance Jio and Bharti Airtel has chipped away at its market share, while a hefty debt load, mainly stemming from regulatory dues, has further stifled its growth. This capital infusion could indeed serve as a much- needed lifeline.

Vi intends to allocate the lion’s share of the funds (Rs 127.5 billion) to expand its network infrastructure, including setting up new 4G sites, bolstering existing ones, and establishing approximately 22,000 new 5G sites in key regions. Additionally, a portion of the funds will cover certain corporate expenses and deferred regulatory payments.

Vi plans to spend Rs 127.5 billion, the lion’s share of its FPO, to expand network infrastructure, including new 4G sites and establishing over 22,000 new 5G sites.

A Slow and Gruelling Turnaround

Once among the leaders, Vi’s operating performance has steadily declined, with customers flocking to rivals offering superior network quality. The company has accumulated substantial net losses, primarily attributed to debt finance costs, while Airtel and the relatively new entrant Jio are profitable (for a comparative performance snapshot, see: How the Telcos Compare?).

Jio commands a 40% subscriber market share (471 million subscribers), trailed by Airtel with 36% (372 million), leaving Vi lagging at 19% (215 million). Similarly, Jio and Airtel dominate the revenue market share with approximately 39% and 37%, respectively, while Vi struggles at a mere 17%. Furthermore, Vi holds less spectrum than its competitors due to recent auction setbacks, posing a growth challenge. However, Vi maintains a notable presence in the enterprise mobile segment, which is its historical stronghold.

Evidently, Jio and Airtel have emerged as dominant forces in the Indian telecom landscape, surpassing Vodafone Idea across critical business metrics. Vi’s financial woes, ageing infrastructure, and fierce competition have hampered its ability to vie effectively with its better-endowed adversaries.

Challenges and Opportunities Abound

Despite encouraging FPO results, Vi must grapple with its mammoth debt burden, constraining its ability to invest in growth initiatives post-FPO utilisation. As of December 31, 2023, the company’s debt load is estimated at approximately Rs 2.15 trillion (including accrued interest not yet due).

Other visible challenges include a much lower Average Revenue Per User (ARPU) below Rs 150 per month, contrasting with Airtel’s exceeding Rs 200. Vi’s monthly subscriber churn at 4% lags behind peers, a regression from its sub-3% churn in FY21. These formidable obstacles present a daunting task to bridge the divide.

However, opportunities abound. Vi’s FPO success and backing from influential investors signal renewed confidence in India’s Digital Revolution and the company’s potential. The Indian telecom market, with its vast subscriber base and burgeoning demand for data services, presents ample opportunities for a resurgent Vi.

India’s 5G penetration remains modest, albeit with rapid growth, presenting Vi with a sizable market gap to exploit. Vi can leverage its established brand presence and reach for a larger market share with multiple initiatives.

Despite encouraging FPO results, Vi must grapple with its mammoth debt burden, constraining its ability to invest in growth initiatives post-FPO utilisation.

• Selective investments: Channelling higher investments into Vi’s top 17 circles, which contribute 98% of its revenues, for expanded 4G and 5G networks could yield quick wins.

• Spectrum refarming: Investing in repurposing existing 2G and 3G spectrum for 4G could lead to additional 4G sites with lower investment outlay.

• Migration to 4G: With around 42% of Vi’s subscribers (around 90 million) still on 3G and 2G, there is an opportunity to migrate them to 4G with higher-value plans, boosting ARPU.

• Deployment of 5G: Closing the 5G gap could attract non-4G and 4G users, potentially boosting data usage and ARPU and enabling new services like Fixed Wireless Access.

• Strengthening enterprise market standing: Fresh investments in 4G and 5G would reinforce Vi’s integrated enterprise solutions across various sectors, enhancing overall Internet of Things connectivity.

Moreover, Vi stands to negotiate better terms with network equipment providers, who are struggling amid waning demand from Jio and Airtel. This could potentially give Vi a commercial edge.

Finally, Vi can refine its operational strategies by gleaning valuable insights from the 5G rollout experiences of early movers Jio and Airtel.

Can Vi Challenge the Big Two?

Vodafone Idea’s journey to reclaim prominence will be lengthy and challenging. Jio’s bold moves and Airtel’s resilience have forged an environment where only the fittest contenders can endure. Significant efforts are required for Vi to bridge the chasm, which presently seems daunting.

Vi’s FPO success and backing from influential investors signal renewed confidence in India’s Digital Revolution and the company’s potential.

The dominance of Jio and Airtel is poised to continue.

The FPO’s success offers a glimmer of hope for Vi. The company’s adept handling of fresh capital, debt management, network and spectrum investments, 5G rollout, operational streamlining, and execution of a well-crafted turnaround strategy will shape its destiny.

Ultimately, only time will reveal whether the FPO represents a fleeting lifeline or the cornerstone for Vi 2.0.

By Jaideep Ghosh

The author is a management consultant and a former Partner at KPMG in India.

Views are personal.

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