After a turbulent 2021 Vodafone Idea faces uncertain 2022

It's been a turbulent year for India's third-largest service provider, Vodafone Idea, which spent most of 2021 fighting to survive. But as the year comes to a close, government measures and a tariff hike have placed it on a better footing.

With backers Aditya Birla Group and Vodafone Group refusing to invest more in the ailing telco, and massive debt of $3 billion, it needed a helping hand to address these issues.

Figure 1: Helping hand: Vodafone Idea has struggled through 2021 – will 2022 be any different?
(Source: Amlan Mathur/Alamy Stock Photo)

A large part of this debt is dues the company owes to the government, including those related to adjusted gross revenue (AGR), spectrum payments and other liabilities. At one point, there were talks about a possible merger with state-owned Bharat Sanchar Nigam Limited (BSNL).

Dropping subscriber base and ARPU

The financial problems mean the operator has continued to lose subscribers and, consequently, market share over the past two years, as it struggled to invest in network coverage and upgrades.

Vodafone Idea's subscriber base decreased from 372 million in September 2019 to 269 million in September 2020. The past two years have also witnessed a significant decline in market share from 31.73% in September 2019 to 23.15% in September 2021.

It now has the lowest average revenue per user (ARPU) among its peers. The September 2021 quarterly results showed the service provider has an ARPU of INR109 ($1.44), much less than Jio's INR INR144 ($1.93) and Bharti Airtel's INR153 ($2.09). ARPU dropped from INR119 ($1.57) in September 2020.

Telecom reforms: Government's helping hand

It got some respite when the government announced telecom reforms in September2021. A key aspect was a four-year moratorium for service providers to clear their dues.

This gives Vodafone Idea time to look for investors. Added to this, the administration also altered the definition of AGR and allowed 100% foreign direct investment (FDI) in the telecom sector.

The measures have given much-needed clarity to government policy towards telecoms, and indicate that India wants Vodafone Idea to continue operations. All these are good signs, and should help Vodafone Idea acquire investment or give confidence to existing shareholders to provide funds.

Tariff hike

Another key moment for the service provider was the decision to follow Bharti Airtel and increase tariffs by 21% in the prepaid segment.

This will help the company acquire funds for the upcoming 5G spectrum auction and consolidate its market position.

Vodafone Idea has also been conducting 5G trials and tests. It recently showcased various use cases for both consumer and enterprise segments. The company also announced it had trialed network slicing in the city of Gandhinagar in western India.

Looking ahead

In spite of reforms the coming year is hardly likely to be a bed of roses for the company.

A big issue of concern is that even after the government announcements, the operator hasn't been able to attract investors.

The government has given relief only in the form of an extended timeframe and not financial relief, so it still needs to make the payments. More recently it was reported that Vodafone Idea was in talks about possible fresh funding from the State Bank of India, the country's largest bank, and investors Apollo Global.

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It needs to raise between $1 billion to $2 billion to make immediate payments and to keep pace with its rivals.

On top of this, 5G is likely to launch in 2022 in India, and Vodafone Idea will be required to make a substantial investment.

While the company managed to survive a very tough 2021 and the worst might be over – the coming year will require it to take stringent measures to regain lost glory.

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— Gagandeep Kaur, contributing editor, special to Light Reading