Vodafone In Huge Distress: Debt, Layoffs, No 5G Launch, and Financial Crisis Worsening.
Vodafone In Huge Distress: Debt, Layoffs, No 5G Launch, and Financial Crisis Worsening.
The Vodafone Crisis has persisted for 15 years, and counting and only seems to be getting worse. Mergers often happen in the telecommunications industry, which is changing quickly and is one of the fastest-growing industries. In 2018, Idea and Vodafone merged in what is seen by some analysts as Vodafone’s last chance to remain competitive in India.
The third-largest telecom company, Vodafone Idea, is in serious financial trouble.
Vodafone is in severe trouble as there is no sign of a capital raise, there is still no information about when 5G will be available, and the company is steadily losing subscribers. This has revived worries about a duopoly in the Indian telecom market.
Now, rivals Reliance Jio and Bharti Airtel are pushing the rollout of 5G services across the country. The move comes as experts predict that 5G will help boost the telecom industry in India by $12.5 billion annually.
With everything going on, Vodafone Idea is having a hard time. A capital raise is essential to the company’s continued existence, but no one seems willing to take the initiative, not the promoters, not the lenders, and not even the government, which had intended to acquire an equity stake in Vodafone Idea in exchange for the interest it owes on deferred AGR (adjusted gross revenues).
Vodafone Idea’s numbers are bleak: In the second quarter, the company had a net debt of about Rs 2.2 lakh crore and a cash balance of Rs 190 crore. Despite losing 6 million subscribers during the third quarter of 2018, the company’s net loss ballooned to Rs 7,595.5 crore due to higher finance and operating costs. Its subscriber base could decrease if it doesn’t offer 5G to compete for customers.
Both the government and the promoters need a firm plan for capital infusion, but lenders are waiting for a final word from the government on its plan to acquire equity. The situation has gotten really bad, so the British government is using diplomatic channels to get India to make an announcement about equity conversion so they can get a clear answer from the government. Promoter and Aditya Birla Group chairman Kumar Mangalam Birla recently met with Telecom Minister Ashwini Vaishnaw to discuss speeding up the equity conversion process for Vodafone Idea.
In a recent article, Vaishnaw mentioned that equity conversion is a complex issue that is being discussed regarding Vodafone Idea’s need for a capital infusion. Vodafone Idea requires many things. It needs capital. What is the projected budget, and who will be providing the funding? At present, all those matters are being discussed.”
Given the gravity of the situation, Vodafone Idea has reached out to a number of lenders, including State Bank of India, Punjab National Bank, HDFC Bank, and IDFC First, in an effort to secure loans totaling more than Rs 7,000 crore. Aditya Birla Group’s Vodafone Idea, a joint venture with Vodafone of the United Kingdom, has reportedly been in talks with the State Bank of India (SBI) for a loan in the range of Rs 15,000-16,000 crore. The company must pay Indus Towers and other vendors immediately.
Almost a year has passed since the Vodafone Idea board approved the government’s request to convert the full amount of interest on the deferred spectrum and adjusted gross revenue dues into equity, increasing the government’s stake in the company from 34.8 percent to 35.8 percent. In September 2020, Vodafone Idea revealed that they would be seeking funding in the amount of Rs 25,000 crore. To pay off its debts, the company received over Rs 4,900 crore from its promoters.
If the current issue is not resolved soon, the Indian telecom market, which has attracted several international telecom companies, may become a duopoly. This will hurt Indian mobile users and the government, which helped the struggling telco with a telecom reform package in September 2021. However, the government appears to be in control again.
Regarding 5G, Vodafone Idea lags behind other telecom operators.
Vodafone Idea is suffering because of the stalemate between the government and the operator. To begin, the company is rapidly losing subscribers because of the doubts that surround its future. Regulatory data show it lost 4 million subscribers in September last year.
As far as 5G is concerned, Vodafone Idea is just as far behind as other telecommunications companies. Bharti Airtel and Reliance Jio have already started using the new technology in a number of cities, but Vodafone Idea hasn’t even said which 5G companies will provide products for its network. There is a chance that high-value customers will switch to rival networks that have already begun providing 5G service.
It will also be unable to take advantage of 5G opportunities in the business market, where it currently has a respectable foothold. The company’s current financial situation may make it difficult for it to compete successfully in the future.
Vodafone’s future hinges in 2023
Investment bank CLSA predicted on Tuesday that 2023 will be a watershed year for telecom giant Vodafone Idea (Vi). It went on to say that 5G rollouts and data adoption-driven revenue growth will be the most important metrics to track this year. The company released its forecast for the telecommunications industry on Tuesday, predicting three major developments in the mobile market in India in 2023. 5G deployments and monetization will be spearheaded by high-end users
Vi’s financial crisis hasn’t been solved because it’s taking longer to raise money and the government hasn’t been able to turn four years’ worth of interest on the spectrum and AGR (Adjusted Gross Revenue) payments into equity. Currently, the organization needs close to Rs 24,000 crore to settle its short-term debts.
While delays in Vi fundraising could cause further share loss, it would benefit RJio and Bharti, which will accelerate their 5G rollouts in 2023. Since VI’s market share is falling, Bharti Airtel and Jio have increased their control to 77% and are expected to continue growing in this market. The report claims that Vi will benefit from the new telecom bill.
According to the report, “Vi, which hasn’t made any payments to the government in four years, might profit from this regulatory bill, which may include choices for write-offs.” Furthermore, CLSA noted that the telecom industry’s ARPU is still 17% lower than it was before the launch of Reliance Jio, even after adjusting for inflation. It also mentioned the upcoming IPO for Jio as something to keep an eye on.
It is predicted in the report that Bharti (Airtel) will be in the vanguard of price increases that will result in an average revenue per user (ARPU) of Rs 236 by FY25. However, Bharti’s stated goal is an ARPU of Rs 300.
“We see a number of things to keep an eye on, the most important of which are likely price hikes and Reliance Jio’s (RJio) much-anticipated IPO,” the report said. It also predicted that Bharti (Airtel) will raise tariffs first, followed by Vi and Reliance Jio. If private networks are allowed to operate, they could threaten 5G providers’ ability to provide business services.
After a 14% increase in 2022, the mobile industry in India is expected to continue growing in 2023 due to factors such as tariff increases, increased data penetration, and increased data usage. The introduction of 5G by Jio and Bharti will coincide with rising subscriber realizations and expanded market share. We expect rising average revenue per user and data penetration to boost sector revenue by 14% annually to Rs 2,84,600 crore ($36 billion) by FY25.
Vodafone Plans Global Layoffs of Hundreds
Vodafone, the world’s largest provider of telecommunications services, has announced that it will be eliminating “several hundred jobs.” “according to the Financial Times, which cited two unnamed people briefed on the talks, the majority of its employees are based out of its London headquarters. It was also noted that this would be the company’s largest round of layoffs in five years.
Following a deteriorating market outlook, Vodafone announced in November that it would implement cost-saving measures totaling $1.08 billion by 2026. European telecommunications companies like Spain’s Telefonica and France’s Orange have seen their market value drop by nearly 50%. The businesses are under significant stress because of rising interest rates and high energy costs.
The global workforce at Vodafone is 104,000 strong. It was not possible to confirm how many jobs would be lost in India, where Vi is a joint venture between the company and Idea. After leading Vodafone through a decline in value of over 40% during his tenure as CEO, Nick Read announced his resignation at the end of 2022. The position of CEO at Vodafone has been temporarily filled by CFO Margherita Della Valle.
This week, Vodafone also reached a deal to sell its Hungarian operations to 4iG, a local IT firm, and the Hungarian government for $1.82 billion in cash. This deal was announced last August. We are currently conducting a review of our operational model with the goal of centralizing and simplifying the organization. On February 1st, when we report our third-quarter results, we will provide more details about the adjustments “in November, the firm had said.
Unless Vodafone Idea can quickly inject new capital, it is likely that the company will continue to lose customers to its competitors. As 5G becomes the talk of the telecom industry, how much longer can a debt-ridden network that is behind on 5G technology continue to operate? Nothing but time will tell. Vodafone Idea has been struggling for years in India’s highly competitive telecom market, and it now appears that the company will likely go bankrupt if it is unable to resolve its financial difficulties.
Edited by Prakriti Arora
