Vodafone Idea's fundraise prospects become bleaker as customer attrition continues

Vodafone Idea

As Vodafone Idea (Vi) continues to lose customers, its chances of securing much-needed funds from investors appear to be dimming, say analysts.

As per the Telecom Regulatory Authority of India's (TRAI) data, Vodafone Idea lost 1.7 million subscribers in November 2023. The telco has been witnessing a decline of two to six million subscribers per quarter in the last few quarters due to the migration of subscribers to other telcos.

Vodafone Idea's overall subscriber base stood at 215.2 million on December 31, 2023.

The lack of adequate funds will continue to shrink its customer base going ahead, too, unless the company is able to devise a plan to concentrate on priority circles and safeguard its customer base to significantly increase its Average Revenue Per User (ARPU) to attract investors, they said.

The company has so far missed several internal deadlines to secure funding from external investors, which, according to sources, is mainly because investors have so far remained circumspect about the company’s ability to stem the ongoing customer exodus.

On Monday (January 29), Vi reported a net loss of Rs 6,985.9 crore for the December quarter, narrowing 12.56 percent from Rs 7,990 crore in the year-ago period. Revenue came in at Rs 10,673.1 crore, up 0.49 percent from Rs 10,621 crore in the third quarter of the previous financial year.

Vodafone Idea’s ARPU improved to Rs 145 in the third quarter, up 7.4 percent year-on-year from Rs 135 in the same period last year, primarily aided by a change in the entry-level plan and subscriber upgrades.  The company revamped its offerings and focused on its execution to compete effectively in the market.

A chicken and egg problem 

“Essentially, it's a chicken and egg problem. Until you get funding, you cannot invest in 5G and network capex to ensure a good quality of service even on an existing 4G network. Unless you do that, you will lose out on subscribers. It's a vicious circle. And someone will have to come in and go in good faith that they can turn around Vodafone Idea,” Ashwinder Sethi, Partner at Analysys Mason, told Moneycontrol.

Sethi said that potential investors are concerned and unsure about the turnaround. “...these are not strategic investors because strategic investors have burned their hands in India. No global telecom operator wants to come to India for sure. Only financial investors are evaluating and can't turn around Vodafone Idea.”

Urgent need for capex 

Neil Shah, Vice President of Research at technology market research firm Counterpoint Research, said that the third-ranked telco needs funding infusion to build cost-effective Open RAN-based 5G networks which can alleviate some percent of CAPEX and OPEX theoretically and act as a leverage point to increase its bargaining power against the traditional, more expensive equipment vendors.

Shah said that Vodafone Idea is experiencing an accelerating subscriber churn from migrating the 2G user base to 4G and maturing the 4G user base to rival's 4G/5G networks.

However, Mahesh Uppal, Director of a telecom consultancy firm ComFirst (India), said that investors would be driven more by the actual revenues of Vodafone Idea rather than the actual number of subscribers. “It is a concern for them [investors] that they are losing subscribers. However, I believe the larger issue for investors is the company's revenues. While the company loses subscribers, they still have many premium subscribers.”

Sethi said that Vodafone Idea should sharpen its strategy by focusing on high-revenue circles and targeting an ARPU increase of up to Rs 250 in those circles over the next couple of years. "Focusing on nine to ten circles with results will give confidence to investors."

Funding talks continue 

Akshaya Moondra, CEO of Vodafone Idea Limited, on January 29, said the telco was engaged with various parties for fundraising to make the required investments for network expansion, including 5G rollout. Notably, the cash-strapped company failed to get funding from the US’ International Development Finance Corporation (DFC) to deploy OpenRAN and related technologies for the 5G network, the telecom department has said in an internal telecom department report.

On January 17 at the World Economic Forum in Davos, Bharti Enterprises' Chairperson Sunil Mittal told Moneycontrol that Vodafone Idea needs “serious capital” to be in the business.

"So, a lot of investment is required, and they need to shore up their capital base. They need to get some investors; they need to get some more debt. You need serious capital to be in this business. And that, sadly, has not been the case for the last two or three years... I wish them well,” Mittal said.

Indus Towers Ltd., of whom Vodafone Idea is a key customer, on January 24 revealed that Vodafone Idea's proposed fundraising plans have not materialised.

"The funding plan of the said customer (Vodafone Idea) has not materialised till date, and the said customer has not made the committed payments about the outstanding amount due as of December 31, 2022," Towerco wrote in its notes to account, as part of its earnings statement.