The government owning Vodafone Idea is only half the job – the other half is finding the money
Vodafone ideatoday announced the conversion of interest on its spectrum and AGR contributions into equity, making the government the largest shareholder.
- Government intervention could help Vodafone Idea get into debt to finance its operations, but finding equity investors remains a major task for the telecommunications company.
- Analysts are divided on the issue, with some suggesting it could prove to be a useful intervention for the sector as a whole, while others have expressed apprehension over the government’s ability to stabilize the ship.
The Indian government did what many pundits and analysts didn’t think it would do – take a stake in a telecommunications operator that was on the verge of collapse just a few months ago. The message is loud and clear: the government does not want India’s telecommunications industry to become a duopoly of Reliance Jio and Airtel.
However, the market response to the announcement was brutal – shares of Vodafone Idea fell as much as 19% at the start of trading yesterday (January 11). At 3:30 p.m., it was down more than 20%, suggesting that the market is frightened by the government’s entry as a shareholder.
What the street has in mind
The likely question in the market is, should the government own another telecommunications company? The government’s ability to lead the government-run Vodafone Idea and BSNL ship might be reason enough to doubt, as an investor, but this must not be the case if the government leaves the management of Vodafone Quiet idea.
Glass half full?
On the other hand, some analysts believe it might actually prove useful for Vodafone Idea and BSNL MTNL stakeholders – subscribers, investors as well as the government.
Deven Choksey, managing director of KRChoksey Shares & Securities, said that a merger of Vodafone Idea with BSNL could prove to be a timely move, especially with the 5G era nearing. Vodafone Idea’s wireless coverage and BSNL’s pan-Indian wired coverage could very well complement each other and help the two companies take on their rivals Reliance Jio and Airtel.
“If Vodafone Idea and BSNL enter into an asset sharing agreement (asset / liability, Inter Circle Roaming) on 2G, 4G and later 5G, it could prove to be a win-win for both companies, allowing two companies to leverage each of them. of their assets, and then it is their customers who will benefit, ”said Errol Dale Pinto, former circle entrepreneur of Vodafone Idea.
“This is probably the best arrangement for Vodafone Idea, allowing it to lighten the burden of its books and avoid interest charges, paving the way for its profitability and between PE funds and the government, the latter works. better in terms of control and handling for the rebirth of VI, “he added.
Easier said than done
However, realizing these synergy gains is easier said than done. Some analysts believe the government taking a stake in Vodafone Idea “could be a cure worse than the disease.”
“Converting Vodafone Idea into a state-owned company or merging it with a state-owned company could probably be a cure worse than the disease,” said R Chandrashekhar, former secretary of telecommunications and information technology, in an exclusive interview with Business Insider in August of last year. while discussions on a telecommunications aid plan were still circulating.
And then there’s the massive elephant in the room – the culture shock problem.
“Bringing together an Indian business, a global corporate culture and a public sector corporate culture, and manage the plight of these public sector employees of a lakh – who in the private sector can afford it? Sanjay Kapoor, former managing director (CEO) of Bharti Airtel, asked in an interview last year.
Who will finance the investment expenses of Vodafone Idea?
What Vodafone Idea needs now is spending to expand its network capabilities and prepare for the 5G era – and that means it needs the money right now. The recent rate hikes may have helped alleviate the short-term cash flow crisis to some extent, but more is needed than just a short-term nudge.
“Vodafone Idea is still not investing enough in capital expenditure. They have yet to seek out equity investors and at least increase their capital investments in line with Bharti and Jio, ”said Nitin Soni, senior director of Fitch Ratings in a conversation with
According to Dale, a robust 5G launch would require a telco to invest around 20,000 to 25,000 crore, including capital expenditure, spectrum and, critically, maximum fiber backbone. With this announcement, the phone company fulfills a significant part of that requirement and prepares it for 5G auctions.
Too little, too late and too slow?
While a Vodafone
Especially considering the fact that Vodafone Idea has lost nearly 64 million subscribers since early 2020.
Reliance Jio and Airtel are both flamboyant with their 5G investments and partnerships – Jio announced a partnership with Google in June last year, while Airtel has
led already its own 5G trials, in addition to demonstrating use cases in business. For what it’s worth, Vodafone Idea
joined the party too, although a little late.
While Vodafone Idea is still in talks with vendors to source 5G equipment, rivals Jio and Airtel are a bit ahead, having either
received approval Where
Reception confirmation from providers like Nokia and Ericsson.
However, Choksey says that by converting spectrum and Adjusted Gross Income (AGR) into equity, Vodafone Idea now has more room to borrow money. Money he could use to fund his capital expenditures to improve the quality of his network, invest in new technologies and bid for the next 5G spectrum.
The government has helped Vodafone Idea survive, but in order to thrive it needs money and it needs it now.
While analysts are divided on how this will work for Vodafone Idea stakeholders, the coming months are going to prove to be crucial for the future of the telecommunications company.
The government is now the largest shareholder of Vodafone Idea
Government taking stake in Vodafone Idea “could be a cure worse than disease”, experts say
Airtel, Vodafone Idea and Jio welcome telecoms aid package, but analysts divided on whether enough is enough