In Short:
Vodafone Idea in India is improving its network quality with recent funding, which may slow down subscriber growth for rivals Jio and Airtel. The company raised funds through a public offer and plans to settle outstanding payments with Nokia and Ericsson. S&P Global believes a better network could help retain subscribers. Jio and Airtel have stronger network investments and spectrum portfolios, positioning India as a three-player market.
Vodafone Idea, India’s third-largest telecom operator, has received a significant funding of Rs 215 billion, which is expected to enhance its network quality. This improvement may result in slower subscriber growth for its competitors – Reliance Jio and Bharti Airtel, as stated by S&P Global in a recent research note.
Vodafone Idea secured most of the funds through a Rs 180 billion follow-on public offer (FPO) in April 2024 and is now planning to issue shares worth Rs 24.6 billion to its equipment vendors, Nokia and Ericsson, for settling outstanding payments.
S&P Global mentioned that Vodafone Idea’s debt to EBITDA ratio was around 15x as of March 31, 2024, with adjusted debt standing at approximately INR 2.5 trillion.
Subscriber Churn Challenges
Vodafone Idea, which was the leading market player in 2018 with 35-40% mobile subscribers, has faced a continuous subscriber churn since its merger with Idea Cellular. By March 31, 2024, the company held 19% of mobile subscribers, losing market share steadily.
S&P highlighted that Vodafone Idea’s cash flow was insufficient for network enhancements, leading to subscriber losses due to network quality issues. However, with improved network quality, the subscriber churn is expected to reduce, potentially impacting the growth of competitors.
Network Investment Comparison
While Vodafone Idea lags behind Jio and Airtel in network investments, the latter two have completed the nationwide rollout of their 5G networks. Airtel’s capex is projected to moderate in the coming fiscal years, whereas Vodafone Idea’s annual cash capex was significantly lower in comparison.
S&P noted that Vodafone Idea’s spectrum portfolio remains inferior to Jio and Airtel, particularly in the 26 GHz spectrum band crucial for 5G services. This spectrum gap might continue to affect network consistency and coverage for Vodafone Idea in the 4G and 5G realms.
Market Dynamics
S&P envisions India’s telecom market as a three-player competition post Vodafone Idea’s recent equity raising, speculating that Airtel and Jio will focus on improving profits and balance sheets rather than market share gains. This strategic shift could lead to above-average earnings growth and enhanced access to fresh capital.
Additionally, industry experts foresee double-digit revenue growth in the Indian telecom sector for the next few years, with Airtel expected to gain market share and witness strong EBITDA growth. Reliance Industries is also positioned to leverage the rising data demand and increasing telecom tariffs in the country.
