Vodafone Idea — Humpty Dumpty On Verge Of A Great Fall?

India’s third-largest telecom player, Vodafone Idea, is facing an existential crisis, and no amount of support is helping the debt-ridden company.

Since March 2024, Vodafone Idea has raised close to Rs 26,000 crore from promoters, key vendors, and a follow-on public issue. It has a conversion spectrum due worth Rs 37,000 crore into equity, taking the government stake in the private sector telco to 49%.

Even after an equity raise of Rs 63,000 crore to strengthen the balance sheet, Vodafone finds itself at a crossroads where an absence of any further support either from promoters, investors or banks will force the company to file for bankruptcy.

So far, the government has waived bank guarantees and converted spectrum dues payable into equity.

The government is clear it does not want to convert Vodafone Idea into an PSU i.e. raise its stake beyond 49%, and Vodafone cannot raise equity from investors at a price below face value (the share currently trades below Rs 10 per share). The promoter stake is currently above 25%, allowing operation control, and even the promoters don’t want to commit further capital.

But the next leg of capital expenditure for 4G/5G is heavily dependent on bank debt – and banks are not willing to lend unless they have clarity on the AGR dues. And equity issue is the only way out, but investors are not willing to step in unless they too have clarity on the AGR dues and government support.

So where can the government step in, given the limited room it has to defend the 3+1 telecom play in the country? A bigger question is how long the government will defend this position and to what extent. Can the government do it for just one player and not the other?

A recent dismissal of the apex court order on the curative petition by Vodafone and Airtel is seen by the street as a way forward. The Apex court, while dismissing the petition, made it clear it is up to the executive, i.e. the government, to provide relief to any sector. The court will not step into the domain of policy formation.

The government has yet to firm up its view on this front, and a possible moratorium on AGR dues (including interest and penalty) could be a way forward – but that would provide only temporary relief for a sector that is highly competitive, price-sensitive, and subject to high subscriber churn.

Vodafone has used the equity raise last year to fund capital expenditure for 4G/5G services. It has invested Rs 9570 crore in financial year 2025 and is expected to invest another Rs 5000 -6000 crore in the first half of financial year 2026.

At the end of March 2025, the net debt of the third largest telco was around Rs 1.87 lakh crore. Debt from banks and financial institutions stood at Rs 2350 crore, while the balance was in the form of AGR dues Rs 75,900 crore and spectrum payables Rs 1.2 lakh crore. At the end of March 2025, cash and equivalents stood at Rs 9,900 crore enough for capex for the first half of the year.

Vodafone Idea has been unable to leverage the tariff hikes that telcos undertook last year. While tariff hikes had been in similar range for three private telcos, their ability to translate it into revenues and maintain the subscriber pool has been the least for Vodafone Idea.

In the last two years, Vodafone ARPUs rose from Rs 135 to Rs 164 i.e., 21.5% while ARPUs rose 12.3% in the last fiscal year. But this was accompanied by decline in the subscriber base which witnessed degrowth of 12.3% over the last two years and 6.8% in the last fiscal year.

Compare this with how competition performed in the last year alone, Bharti saw its ARPUs jump 17.2% to Rs 245 while India's subscribed base grew at 2.7% to 361.6 million. Jio, on the other hand, saw ARPUs jump 13.5% and subscriber base growth of 1.3%.

While it is true that there has been SIM consolidation in the last one year and many of the telcos have been able to shed low ARPU customers, these customers have also shifted to BSNL which is also augmenting its network to 4G/5G with government support.

Industry players argue that there isn’t much scope to increase the entry-level tariff and the next hike in tariff rate could come for data usage and slow conversion of non-4G subscribers, which are still around 25-30% of the total subscriber base for Vodafone/Airtel. Players raised entry-level tariff and that led to significant SIM consolidation and subscriber churn for the private players.

The street isn’t pencilling any tariff hike this year for Vodafone Idea though the telco would like to – but the competitive intensity will not allow – and any hike will lead to high ARPU customers shift to other networks making the process counter-productive.

In the absence of a revenue growth trigger, the company has very levers to reduces interest burden and generate free cash flow.

So far, the King’s men have been supporting Vodafone to sit on the wall – Will that continue?