The Indian government has finally picked up a 33% stake in Vodafone Idea, India's third-largest service provider, becoming the third largest shareholder in the company. Clearly, this is a positive development for the telco, which has been struggling to pay off its massive debt of R2.2 trillion Indian rupees (US$26.6 billion) as of September 2022. However, the delay of 15-16 months since the time the government had decided to pick up a stake has cost the company dearly.

On September 15, 2021, the union government cleared a package offering service providers the option to convert the interest of INR161.33 billion ($1.95 billion) from deferred dues to equity. While the offer was extended to all service providers, it was designed to save Vodafone Idea from bankruptcy and, unsurprisingly, the company accepted it.

Figure 1: Vodafone Idea has seen its subscriber base shrink in recent months.
(Source: Amlan Mathur/Alamy Stock Photo)

The whole idea behind this solution was to stem Vodafone Idea's losses and hopefully make it easier for the company to find investors. That opportunity was lost, however, because the government delayed the plan by saying it would only take a stake if the telco's promoters – Vodafone Group and Aditya Birla Group – put more money into the company. According to media reports, both promoters have decided to infuse funds into Vodafone Idea, though it is not clear how much.

This standoff between the government and Vodafone Idea has further added to the company's distress. Its market share has come down from 23.15% in September 2021 to 21.33% in November 2022 in the mobile wireless segment, according to data released by the Telecom Regulatory Authority of India (TRAI).

Not out of the woods yet

That means Vodafone Idea's subscriber base has come down from 269 million in September 2021 to 243 million in November 2022. The company lost as many as 1.8 million subscribers in November 2022 alone. On the other hand, Bharti Airtel has recorded an increase in subscribers from 354 million in September 2021 to 366 million in November 2022, while Jio's subscriber base has marginally reduced from 424 million in September 2021 to 422 million in November 2022. Vodafone Idea has recorded the maximum drop of all three private telcos and this is mainly because of its precarious financial state and inability to invest in network upgrades. The blended churn for the telco in the September 2022 quarter was also higher at 4.3% compared to 3.5% in the previous June 2022 quarter.

The government's decision to acquire a stake is likely to help the company get additional bank funding, which should stabilize the situation for the time being. Vodafone Idea, however, needs an investor committed to pulling the company out of the woods. That is easier said than done. The telco has been looking for an investor for several years, and now, with the government as a majority stakeholder, prospective investors might be reluctant to invest in it.

Vodafone Idea also urgently needs funds to invest in network modernization and 4G expansion to stop the exodus of subscribers. It has the lowest average revenue per unit among the three private telcos and one of the reasons is limited 4G coverage. Further, the company may need to increase its tariffs and with Airtel already hiking the prepaid tariff this is likely to happen soon.

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— Gagandeep Kaur, Contributing Editor, special to Light Reading