VI to launch 5G in 6-9 months post Rs 18,000 crore FPO as it looks to catch up with Jio, Airtel

In the last couple of years, Vodafone Idea (VI) has been a laggard in the telecom space. Hit by an adverse Supreme Court judgement related to adjusted gross revenues, the telecom operator has had to be bailed out by the government; it has struggled to enhance 4G network amid a fund crunch even as rivals have raced ahead rolling out 5G and that in turn led to millions of customers porting out.

The company is now hoping to turn things around with a follow-on public offer of Rs 18,000 crore, which opens for subscription later this week. This issue will be the largest follow-on share sale by a corporate on Indian stock exchanges and with this VI hopes to kickstart its 5G rollout, strengthen 4G network and enhance its digital offerings as it looks to become competitive again in a sector, now dominated by two players—Reliance Jio and Bharti Airtel.

"We have a strong proposition today where our gross subscriber share in the market is more than the customer market share. Investments in network coming out of this funding will enable us to improve that and participate in industry growth, which has not happened in the last few years," noted VI's chief executive Akshaya Moondra.

VI has fixed a price band of Rs 10-11 for the Rs 18,000 crore FPO, which opens for subscription on April 18 and closes on April 22. The anchor investor bids will open on Tuesday (April 16).

The company plans to use the proceeds to purchase equipment for expanding its network infrastructure by setting up new 4G sites, expanding the capacity of existing and new 4G sites and setting up new 5G sites. Part of the funds will also be used for clearing certain deferred payments for spectrum to the DoT (department of telecommunications) and for general corporate purposes.

Telecom company Vodafone and Idea Cellular merged in 2018, creating the largest telecom company at the time in India with 408 million customers. But, over the last few years, the company has lost subscribers massively, as it has lagged behind rivals in network expansion. At the end of the December 2023 quarter, it had 215.2 million subscribers. Rival Jio had 470.9 million and Bharti Airtel had 397 million at the end of December 2023 quarter.

A key reason behind the subscriber loss has been limited investments in its network. Both Reliance Jio and Bharti Airtel have rolled out 5G network across the country, but VI is yet to do so. The company now plans to start the rollout of 5G, in six to nine months post the fundraising, according to Moondra. It has earmarked Rs 5,720 crore from the funds being raised for the 5G rollout, he added.

Even as the company has lost subscribers, Moondra noted that VI had been able to grow its 4G subscriber base for ten consecutive quarters.

"With the proposed funding plan, we will revert back to our original articulated strategy, which has got four pillars. The first pillar is focused network investments to drive coverage and capacity expansion. Here, our investment will be focused on 17 priority circles. The second pillar is ARPU (average revenue per user) improvement and customer retention. As we invest in 4G capacity and 5G rollout, we believe we will be able to participate in the growth of the industry," Moondra stated.

Under the 5G rollout plan, VI plans to cover 40 per cent of its revenue coverage over the next 24 to 30 months.

"We will be calibrated in our 5G investments as we progress, because it is important that we deploy 5G where it makes sense," said Moondra.

He also stressed the need for ARPUs in the industry to go up.

"India has among the lowest ARPUs amongst major economies in the world. None of the operators in India are returning their cost of capital," Moondra pointed.

VI's ARPU was at Rs 145 per month in the December 2023 quarter, up 7.4 per cent from a year ago ARPU of Rs 135.

Almost 42 per cent of VI's subscribers are still not on 4G. Upgrading these 2G customers to 4G will aid in the company's ARPUs going up.

Aditya Bansal of Kotak Institutional Equities says the fund raise, albeit much delayed, is a step in the right direction. It should help "bridge the network coverage gap and improve competitiveness versus peers" to some extent.

The increased 4G coverage should help arrest market share losses on 4G in the near-term, but gaining market share from larger peers will still remain a task for VI, he felt.

"VI lost 19 per cent market share since the merger due to its inadequate network spends. While we expect VI to bridge the network coverage gap on 4G and arrest some of the market share losses, the gap in 5G coverage would still remain significant," pointed out Bansal.

Any potential tariff hike should also benefit rivals as they can outspend VI on customer acquisition and thus prevent any meaningful market share gains for VI, he added.

Vodafone Idea shares closed at Rs 13.08, up 0.9 per cent on the BSE on Monday. In comparison, Bharti Airtel closed up 0.2 per cent at Rs 1,227.15 and Reliance Industries was down 0.1 per cent at Rs 2,932.90.