16 Feb Voda Idea to shut 3G in FY22, fund raising to be closed ‘soon’
Vodafone Idea (Vi) plans to fold up its 3G services by FY22 as it bids to move towards becoming 4G-focussed telco in a bid to boost revenue, although it would keep its 2G services running for years given that it has a large segment of basic phone subscribers.
The telco’s senior management, at its quarterly earnings call on Monday, also allayed concerns around delays in its Rs25,000-crore fund raising plans, saying it will close “soon” given the keen interest shown by potential investors. ET has reported a consortium led by Oak Hill Advisors is in advanced talks with the only loss-making telco in India for a $2-billion credit line.
“The direction which we are taking is that 3G is not required anymore. It has been continued, only because some people have devices which can be used only on 3G and not on 4G,” Chief Financial Officer Akshaya Moondra told analysts. The telco still has around 11 million 3G users.
“…Ideally, we should be done with our 3G closure in FY22,” he added.
However, which it still has some 149 million of its 268 million users still on 2G, will continue to offer the legacy technology for a “very long period of time,” said Managing Director Ravinder Takkar, stressing that it can be used for voice and certain Internet of Things (IoT) services without any increase in costs.
Rival and market leader Reliance Jio – which runs a 4G-only network – has been pushing the authorities to intervene to ensure India has only latest technology. But both Airtel and Vodafone Idea – being older operators – offer all three technologies, but have been taking steps to shut 3G services while keeping running. Airtel has some 133 million non-data, mainly 2G, users of its 308 million subscriber base.
Takkar also dispelled concerns around possible any delays in raising funds, saying, “We are very well engaged and that there is interest from various participants in helping us with fundraising”, saying the demand for investing in the telco was “very positive”.
Shares of Vi closed at Rs 12.08, down by 3.7% on the BSE, in a positive broader market, as investors were disappointed despite a narrower net loss, due to continued subscriber losses (over 2 million), below expected average revenue per user (ARPU) of Rs121 and limited capex spending (Rs970 crore) that the telco reported in its third quarter.
Brokerage firm CLSA has called it an “unsatisfactory performance”, highlighting the “enormous debt burden” of the operator.
Brokerage Goldman Sachs said that at current annual earnings before interest, tax, depreciation & amortization (EBITDA) run rate of Rs7100 crore, excluding some accounting impact and one-offs, the company should have enough liquidity to meet scheduled payments due until the end of 2021.
“However, between Dec ‘21 and April ‘22, Vodafone Idea has about Rs21,500 crore of dues payable (debt, AGR and spectrum), and without a tariff hike, our estimates show a capital shortfall of around Rs20,000 crore for the company during this period. Since most of these dues are recurring in nature, we believe a one-time capital raise would not be a sustainable solution to Vodafone Idea’s balance sheet stress,” Goldman Sachs said.
It added that to improve its financial position, the telco would need to increase tariffs would immediately.
Takkar said that Vi will increase rates when it “is the right time…we are not waiting for anyone. Tariff hike is much needed”.
While Airtel and Jio have announced their 5G prowess, Takkar said Vi’s network is also 5G ready but the ecosystem needs enough user case studies, spectrum in the 3500 Mhz band and handsets that can accommodate the next generation services, for it to be truly launched in India.
“We have always said that our network is 5G ready… Interesting that competitors are showing DSR (dynamic spectrum refarming) in a lab environment when we have been practically running 1000s of sites in a production environment for a very long period of time,” said Takkar.