Another curve ball for India's Vodafone IdeaAnother curve ball for India's Vodafone Idea

Vodafone Idea's pending debt funding of 250 billion Indian rupees ($2.96 billion) is likely to be delayed as financial institutions demand clarity on adjusted gross revenue (AGR), CEO Akshaya Moondra mentioned during an earnings call last week.

"As any interested party, the lenders are also looking at what is happening on the AGR matter. However, it was not a part of our business plan that we submitted to them for debt funding. So we are engaged with the banks … and we should be able to close once some clarity emerges as to what is happening on the AGR," he said.

Vodafone Idea, India's third-largest service provider, suffered a setback in September when India's Supreme Court dismissed a curative petition regarding a recalculation of AGR dues filed by several telcos, including Vodafone Idea. Telcos have to pay a percentage of their revenue to the government, and the AGR controversy revolved around whether this revenue should include money they earn from non-telecom sources. After several years of litigation, the Supreme Court ruled that telcos must include revenue from non-telecom sources as well. 

The dismissal of the curative petition means that the company will need to pay the entirety of AGR dues worth $8.33 billion at the end of September 2024.

Vodafone Idea reported a loss of INR71.75 billion ($850 million) in the quarter ending September 2024, significantly less than the INR87.46 billion ($1.03 bn) loss reported in the same period last year. This improvement is due to the increase in average revenue per user (ARPU) resulting from a tariff increase announced by Vodafone Idea in July.

An eventful year

It has been an eventful year for Vodafone Idea as the company managed to raise the funds it needed to grow 4G coverage and deploy a 5G network. The company came up with a strategy to raise INR450 billion ($5.4 billion) through a combination of equity and debt tools. It launched one of the largest follow-on public offers (FPO) in the country to raise around $200 billion ($2.4 billion).

After executing the FPO, Vodafone Idea awarded deals worth $3.6 billion to Samsung, Nokia, and Ericsson earlier this year. The service provider was able to do this only after its board approved the allocation of equity to Nokia and Ericsson to clear off pending dues. The FPO was to be followed by raising INR250 billion ($2.9 billion) through debt, but now the banks are asking for clarity on AGR since the curative petition has been dismissed.

The service provider is on path to launch 5G services in March 2025. Recently, Nokia issued a press release that mentioned that it would be delivering around 3,300 new sites for Vodafone Idea by March 2025, besides upgrading "over 42,000 technology sides and more than 25,000 spectrum expansions across VIL's network" to boost bandwidth and data capacity.

This year has been largely positive for the company as it turned the corner by securing funds for network expansion and 5G deployment. However, with the AGR issue back in the fray, it continues to face regulatory challenges.

Another tariff hike? 

Vodafone Idea says that while affordability is crucial so people from all sections of society can benefit from connectivity, significant investment is required to address growing data consumption and to deploy new technologies. "This is possible when customers who are using more will pay more to enable the industry to generate a reasonable return on capital on the large investment that has been made. Hence, further tariff rationalization is needed for the industry to recover its cost of capital," Moondra mentioned in the recent earnings call.

While tariff rationalization might be the need of the hour, it will be tough for Vodafone Idea to go for a rate hike. The increase in charges earlier this year led to its subscribers moving to BSNL's network, which hadn't gone for a tariff hike. It is unlikely that Vodafone Idea will be able to take the lead in increasing rates.

However, the launch of 5G services in the coming year is likely to help Vodafone Idea to benefit from an increase in data consumption as well as adding a new revenue stream. Both Reliance Jio and Bharti Airtel, India's top two telcos, have said data consumption has gone up because of 5G.