Vodafone Idea (Vi) is worth ZERO; needs additional liquidity support from lenders
While announcing its FY23 earnings, UK telecom company, Vodafone Plc said the Group’s carrying value of investment in Indian listed firm Vodafone Idea (Vi) is Zero. Also, that the Group is recording no further losses related to Vi. The troubled-laden Vi is still in need of additional liquidity and plans to raise funds going forward. In its FY23 report, Vodafone Plc said, “VIL remains in need of additional liquidity support from its lenders and intends to raise additional funding.”
Vodafone seems to be backing away from Vi. The business needs more money, that Vodafone is certainly not willing to provide, and that zero valuation indicates that it will put no more effort into saving it. There are significant uncertainties in relation to Vi’s ability to make payments in relation to any remaining liabilities covered by the mechanism and no further cash payments are considered probable from the Group as at 31 March 2023, it added.
“VIL [Vodafone Idea Ltd] remains in need of additional liquidity support from its lenders and intends to raise additional funding. There are significant uncertainties in relation to VIL’s ability to make payments in relation to any remaining liabilities covered by the mechanism and no further cash payments are considered probable from the Group as at 31 March 2023,” Vodafone said, in the notes to its consolidated financial statements for the 2023 financial year.
Furthermore, Vodafone said, “the carrying value of the Group’s investment in VIL is nil and the Group is recording no further share of losses in respect of VIL.”
It should be noted that Vi is the only Indian telco that has NOT yet deployed 5G services. Since the launch of 5G last October, Reliance Jio’s 5G services have become available in more than 400 cities and towns, while Airtel’s 5G services can be accessed in more than 500. Jio plans to provide all-India 5G coverage by December, with Airtel aiming for blanket availability by March next year.
Recently, Vodafone Idea complained to the Telecom Regulatory Authority of India (TRAI), accusing its rivals of predatory 5G pricing. Although it has been shedding customers for years, there can be little doubt that losses have accelerated since the launch of 5G. Vodafone Idea had lost about 7 million in the four months leading up to 5G’s launch in October last year. In the four months following the introduction of 5G services by Airtel and Jio, its losses soared to about 10 million.
Vodafone Idea is known to have a significant percentage of high-spending customers who have remained loyal to it. These customers typically show limited interest in lower tariffs, but many will have been drawn to 5G services available only from other telcos, with Vodafone Idea’s 5G plan nowhere close to fruition. Airtel and Jio, accordingly, are racing to build 5G networks and attract as many Vodafone Idea subscribers as possible.
When Vodafone and Idea Cellular entered into an merger agreement in 2017, the parties had agreed to a mechanism for payments between the Group and Vodafone Idea, pursuant to the difference between the crystallisation of certain identified contingent liabilitiesin relation to legal, regulatory, tax and other matters, and refunds relating to Vodafone India and Idea Cellular. Cash payments s or cash receipts relating to these matters must have been made or received by Vi before any amount becomes due from or owed to the Group.
Hence, any future future payments by the Group to VIL as a result of this agreement would only be made after satisfaction of this and other contractual conditions. Thereby, the UK-based telco said, “Vodafone Group’s potential exposure to liabilities within VIL is capped by the mechanism described above; consequently, contingent liabilities arising from litigation in India concerning operations of Vodafone India are not reported.”
Vodafone Plc’s potential exposure under this mechanism is capped at ₹64 billion n (€719 million) following payments made under this mechanism from Vodafone to VIL, in the year ended 31 March 2021, totalling ₹19 billion (€235 million).
In FY23, Vodafone Plc’s revenue increased by 0.3% to €45.7 billion driven by growth in Africa and higher equipment sales, offset by lower European service revenue and adverse exchange rate movements. While adjusted EBITDAal declined by 1.3% to €14.7 billion due to higher energy costs, and commercial underperformance in Germany.
3 thoughts on “Vodafone Idea (Vi) is worth ZERO; needs additional liquidity support from lenders”
According to a senior Department of Telecommunications official, Vodafone Idea, the third-ranked telecommunications company in India, is expected to release its 5G network in June. The telecom operator has secured funding by partnering with banks, as reported by the New Indian Express.According to the report, Vodafone Idea is in the final stages of discussing fundraising, and the conclusion may be reached in June. “I think Vodafone Idea’s discussion with the banks to raise funds is positive. The telecom service provider will announce its fundraising next month.“I think Vodafone Idea’s discussion with the banks to raise funds is positive. The telecom service provider will announce its fundraising next month.
As the company has maintained that it would start deploying a 5G network once funding is in place, I am expecting the company to start deploying 5G in June itself,” told a senior official of the Department of Telecommunication (DoT).The official said that Vodafone Idea had paid its licence fee for the third quarter in full and also made a partial payment for the fourth quarter, as per the report.The telecom service provider, burdened with debt, has been attempting to secure funding from the market for over two years but has been unsuccessful.
Reliance Jio and Bharti Airtel, the two of Vodafone Idea’s main competitors, have already begun deploying 5G services across the country from last year. The two have confirmed that their 5G deployments will be completed by the end of 2024.According to the report, the central government made a decision in February to convert the interest dues of Rs 16,133 crore related to Vodafone Idea’s deferred adjusted gross revenue (AGR) and spectrum usage charge (SUC) into equity.
According to Telecom Secretary K Rajaraman, Vodafone Idea is anticipated to present its recovery strategy soon. He also expressed his approval of the Aditya Birla Group Chairman Kumar Mangalam Birla’s return to the company’s board as a positive development.
18 May 2023 The Times of India
The Vi telecommunications service provider is ranked #3 in India. If they come with 5G then this will be a good choice. The Vi features are good. Thanks for this IEEE Techblog…
Economic Times of India – Delay in rolling out 5G may hurt Vodafone Idea badly:
The absence of 5G has begun to hurt cash-strapped Vodafone Idea’s key performance indicators, especially the per-capita data consumption of its subscribers, and could lead to loss of core high-paying customers in the coming quarters, analysts said. While both Vodafone Idea (Vi) and Bharti Airtel showed flat quarter-on-quarter growth for per-capita data consumption, the latter’s aggressive push for 5G service expansion in the country is expected to raise this metric up significantly over the next 12-18 months, they added.
“Airtel launching 5G in a meaningful way (since October 2022) means that it will see a proliferation in 5G subscribers over the next few quarters. Data consumption for 5G users is 2.5x of 4G users, which will accelerate growth in per-capita data usage for Airtel,” Rohan Dhamija, head (India & Middle East) at Analysys Mason, said.As of March 31, 2023, Vi’s per capita data consumption stood at 15.1 GB while Airtel’s was 20.3 GB.
Both showed flat on-quarter growth in this regard. Over the next 12-18 months though, Vi’s per-capita data consumption is expected to touch 20 GB, while Airtel’s is estimated to touch 30 GB.Market leader Reliance Jio is already seeing the impact of 5G users on data consumption with a spike in per-capita data usage. For the March quarter, this metric stood at 23.1 GB, up from 22.4 GB in the fiscal third quarter. Over the next 12-18 months, this number is expected to well exceed 30 GB.Airtel and Jio started the phased launch of their 5G services in the country in October 2022, and over the last six months have ramped up efforts to cover as much of the country as possible. Both intend to have extensive 5G coverage by March 2024, indicating that time is running out for Vi to start its 5G campaign.Vi’s inability to push data consumption on its network could have multiple consequences, ranging from a slowdown in average revenue per user (ARPU) growth to increased churn in the long run.”Data consumption is key to improving ARPU in the long run.
All telcos now offer free voice minutes with their plans. Data top-ups will be key in driving ARPUs while we wait for headline tariff hikes,” said Pareekh Jain, chief executive, EIIRTrend, a research firm.Lagging on the 5G rollout by more than three quarters as compared to its peers also means that Vi stands to lose customers even after launching the next generation telecom technology on its network as the quality of service will be compared to the already established networks of its peers.
After launching 5G, the network will take at least two quarters to settle. By this time, Airtel and Jio 5G networks would be running efficiently, meaning Vi could lose customers to peers because of poor 5G service as well, added Jain.