Segmented rate increases taken in July last year and a broader increase towards the end of 2021 appear to have helped the telecom operator record a 3% sequential increase in revenue in the third quarter, driven by an increase in more than 5% of ARPU. With expectations of another round of tariff increases this year, the metric should improve further. While this is an encouraging sign for the company and its investors amid a wave of bad news, analysts say fresh capital and addressing debt issues can only help the company stay afloat.
“These are positive signs and should continue into the next quarter as well. But Vi still has a long way to go to get back on track,” says Charu Paliwal, research analyst at Counterpoint Research. “It requires higher capital expenditure to close the 4G coverage gap and compete effectively. The fundraising exercise must be concluded soon in order to be able to increase investments in the network. »
Admittedly, Vodafone Idea spent a meager Rs 3,300 crore on its networks in the nine months to December, compared to its biggest rival Bharti Airtel’s capital expenditure of Rs 4,600 crore in the July quarter alone. -September, according to Nomura. Capital expenditure in the December quarter was Rs 1,050 crore for Vodafone Idea compared to Rs 6,101 crore for Bharti.
As operators transition their subscribers from 2G to 4G and deepen coverage in the nooks and crannies of a vast geography, they must regularly invest in networks to provide seamless coverage. Vodafone Idea, with its growing indebtedness and string of losses, has been unable to keep pace, losing subscribers and market share to rivals Reliance Jio Infocomm and Bharti Airtel.
ANOTHER RATE INCREASE?
Analysts expect telecom operators to resort to further price hikes this year as the costly 5G auction approaches. In November of last year, telecom operators raised their prices by 20% to 25%.
Bharti Airtel CEO Gopal Vittal recently said that the company would not hesitate to take the lead in pushing through another round of tariff hikes in 2022 itself as it seeks to boost ARPU to 200 rupees during that calendar year, and eventually to 300 rupees. Although any increase is unlikely in the next 3-4 months at least.
Vodafone Idea, which is currently the smallest in the market of the three private players, will have to tread carefully, however.
“There are two concerns,” says Mahesh Uppal, a telecommunications expert. ‘If competitors don’t raise prices, then the phone company that raises them will become uncompetitive. And second, raising prices to improve ARPU could scare away customers and negate the ARPU increase.
Indeed, Vodafone Idea lost subscribers as rates increased last year. Analysts partly attributed the lost subscribers to users who gave up more than one SIM card as prices rose.
“Telecom operators would like a sustainable price increase in the market,” says Uppal.
Last month, Vodafone Idea CEO Ravinder Takkar commenting on the price increase said: “It is possible that there will be another price increase in 2022, but certainly at some point the price increase will take place. The last one was almost 2 years earlier, which I believe is a bit long. We would certainly expect less than two years, but in 2022 we will have to see how quickly these prices take hold. Probably, it could also be 2023.”
Despite recent increases, India’s average mobile data price of around $0.3 per GB remains one of the lowest in the world, with the cheapest data plan costing just $0.1 per GB and giving operators the leeway to increase tariffs further. The price per GB in the United States, China and South Korea is between $8 and $10 per GB, with the cheapest plans costing between $0.6 and $2 per GB, according to data from Crisil Research. .
At the end of December, Vodafone Idea’s gross debt was Rs 1.99 lakh crores, of which Rs 1.76 lakh crores was owed to the Indian government. Despite a four-year moratorium, it has debt repayments of Rs 11,300 crore coming in the next 12 months, and would need external fundraising and steeper tariff hikes to meet the repayments, according to Nomura.
He has offered the government an equity stake of Rs 16,000 crore in lieu of some dues, but has yet to say whether the telecom ministry has accepted the offer.
While the rate increases may help Vodafone Idea to some extent “but not enough to turn around the business and prevent government participation from being further increased when subsequent dues become due after the end of the moratorium period”, says Counterpoint’s Paliwal.
Vodafone Idea has been trying to raise funds since 2020 with little success so far. The company’s managing director, Ravinder Takkar, recently said that he plans to close the fundraiser by March this year.
“Without a significant fundraising, we believe investment in VI’s network and 5G deployment would remain limited, at least in the short term, leading to further market share erosion,” Nomura said. A significant potential dilution of equity is also considered a negative element for any external fundraising.
Even Vodafone Idea’s auditor SR Batliboi & Associates said in January that the carrier’s ability to continue operations depended on its ability to raise additional funds, successful negotiations with lenders for continued support and the generation cash flow from its operations.
Absent any other immediate positive triggers, fare hikes remain the carrier’s only way to improve its finances.
“The long-term health of Vodafone Idea will only be guaranteed after fundraising. It is certainly better today than before with tariff hikes and transfer of funds to the government,” Uppal says. “Everything will depend on what the markets and the government do in the months to come.”