Vodafone Idea gasping for financial relief in India

The financial situation of Vodafone Idea, India's third-largest private telco, continues to worsen.

The company is now looking to sell its data center business, optical fiber unit and fixed-line broadband subsidiary to raise funds, according to reports. It is also asking banks to reduce their collateral charges. It's possible that the sale will be based on a leaseback model, with Vodafone Idea leasing the capacity for a long period of time. The telco has one data centre in Mumbai and 160,000 km of optic fiber in the country.

Figure 1: Bring down the shutters: Vodafone Idea is desperate for cash to clear off debts of $3 billion owed to the government.
(Source: Arti Sandhu on Flickr CC 2.0)

Regarding its fixed-line business, it is available in only 21 cities in southern and western India. This is through the acquisition of You Broadband. The operator hopes to raise $1 billion by hiving off these business units. However, this will not be sufficient, as it needs to clear adjusted gross revenue (AGR) and other government dues of around $3 billion between December 2021 and April 2022.

Vodafone Idea reported a cash balance of just INR3500 million ($47 million) at the end of the March 2021 quarter. And it recorded a loss of almost INR70 billion ($941 million) in the same quarter. Vodafone Idea has been struggling to procure investment of around INR250 bn ($3.36 billion). Google and Amazon are said to be interested, but nothing has borne results so far.

Force majeure

The service provider has said the dire financial condition of the Indian telecom industry is one reason it has failed to secure investment. India's telecom industry is in massive debt, and operators have refrained from increasing tariffs because of the hyper-competitive environment.

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Vodafone has written to the Department of Telecommunications (DoT), highlighting the precarious situation of its finances, and asking the department to postpone its spectrum dues by a year. The government is yet to respond, but Telecom Watchdog, an NGO, has written to the Communications Minister asking for an audit before any decision.

The next few months will decide Vodafone Idea's fate in the country. However, the company has more than 250 million subscribers, with a large percentage of high-ARPU paying users.

So it seems the government needs to come up with a viable solution to the company's problems. Otherwise, as Bharti Airtel's Chairman Sunil Bharti Mittal said some time back, Vodafone Idea's exit will lead to a duopoly – which will be "tragic."

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— Gagandeep Kaur, contributing editor, special to Light Reading