Vodafone Idea default can raise India's fiscal deficit by 40 bps

The social impact of this could be worse as 300 million subscribers may face the annoyance of network shutdown and churn.

A possible default by Vodafone Idea (Voda-Idea) in paying its adjusted gross revenue (AGR) dues and the company shutting down operations will have serious repercussion on the telecom and banking sectors in particular and the economy in general with large magnitude of debt default, job losses and customer annoyance as the telco faces an imminent risk of shutdown.

A default by Voda-Idea and the company shutting shop, analysts say, could increase India’s fiscal deficit by 40 basis points (bps). While presenting the Union Budget for financial year 2020-21 (FY21), the government had pegged the fiscal deficit for FY21 at 3.8 per cent of GDP (gross domestic product) and at 3.5 per cent for FY20.

“Voda-Idea has gross debt of Rs 1.2 trillion, of which around Rs 900 billion is government’s deferred spectrum debt, while around Rs 250 billion is bank debt. A default of such a large scale could increase India’s fiscal deficit by nearly 40 bps, thus having the deepest impact on government receipts despite winning the suit, while creating ripples in the banking sector,” wrote Gautam Duggad, head of research for institutional equities at Motilal Oswal Financial Services (MOFSL) in a recent note.

The social impact of this could be worse as 300 million subscribers may face the annoyance of network shutdown and churn. Reports peg the job loss at Voda-Idea at a staggering 13,500 employees. This is merely the direct impact, while the indirect impact on multiple vendors and other stakeholders could be even worse.

“Ironically, the government, despite winning the suit, could see the biggest impact through deferred spectrum debt default Rs 900 billion. Even with some relief of AGR liability, Voda-Idea would have found it difficult to service debt and capex needs through its operating cash flow,” Duggad says.

The decision to expedite the payment by last week took the companies and the Street by surprise. Most analysts had expected the government to relax the payment timeline and give companies room to secure funding.

Vodafone Idea posts Rs 6,439-cr Dec-quarter loss; subscriber base falls 21%

Posts sixth straight quarterly loss in Q3.

Vodafone Idea reported a consolidated loss of Rs 6,439 crore for the December quarter as compared with a Rs 5,005-crore loss in the same period in 2018-19.

This is higher than analyst estimates, which had pegged the loss at Rs 4,000 crore, after being in the red by a record Rs 50,922 crore in the September quarter. Exceptional items in the quarter were valued at Rs 633 crore, largely on account of integration and merger-related costs.

While a large part of the liabilities on account of aggregate gross revenues (AGRs) was in the September quarter (just over Rs 30,000 crore), the company made a Rs 53-crore balance provision for those in the December quarter. The company posted revenues of Rs 11,089 crore, down 6 per cent over the year-ago quarter, and this was in line with analyst estimates.

Though the churn, which was at 5 per cent a year ago, has come down to 3.3 per cent in this quarter, its subscriber base saw a decline of 21 per cent YoY to 304 million. Bharti Airtel’s subscriber base was flat at 283 million while Jio reported a 32 per cent increase in subscribers to 370 million.

On a sequential basis, the company posted a growth rate of 2.3 per cent. While the price hike has not so far been reflected in the performance, the gains on a sequential basis were led by 4G additions and improvement in average revenue per user (ARPU).

While 4G addition growth was 9.4 per cent, ARPU growth was 1.8 per cent. On a YoY basis, ARPUs were up 22 per cent.

Led by revenue growth and synergy gains from the merger, operating profit on sequential gains was up 0.7 per cent to Rs 3,421 crore.

Higher interconnect costs, however, limited the gains. The company indicated it had achieved 85 per cent of its targeted operating expense synergy of Rs 8,400 crore and is on track to achieve the synergy gains by the first quarter of FY21.

Vodafone Idea needs fresh round of equity infusion by 2021, say lenders

All telecom firms to remain under stress despite tariff hike.

Business Standard : Despite slashing its capital expenditure, Vodafone Idea would require fresh round of equity infusion from its promoters by 2020-21, as its cash, including proceeds from the Indus stake sale, would last only for the next 15 months.

The company had raised Rs 25,000 crore in May this year via a rights issue in which promoters — Vodafone Plc of the UK and Birla Group — invested Rs 11,000 crore and Rs 7,250 crore, respectively, according to their shareholding in the company.

The rights issue was priced at the rate of Rs 12.50 a share. Since the rights issue closed, Vodafone Idea’s share price fell by half to Rs 6.22 as on Thursday and bankers said the firm would need more funding to keep its operations going. Vodafone Idea owns 11.5 per cent stake in telecom tower company, Indus Towers, and expects to raise Rs 5,000 crore by selling the stake.

The equity route is important as Vodafone Idea’s debt touched Rs 1.15 trillion as of March 2019, making it difficult to raise fresh debt, said global banking firm, Credit Suisse, in a report.

A Vodafone Idea spokesperson declined to comment. Lenders said Vodafone Idea is not alone. These companies will find it tough to meet their cost unless they raise tariff significantly or raise fresh debt if they want to participate in the fifth-generation spectrum auction.

As of March this year, Bharti Airtel had a debt of Rs 1.06 trillion, while Reliance Jio had a debt of Rs 1.12 trillion. The deferred spectrum charges of the sector to the government were another Rs 2.95 trillion.

On Wednesday, Jio passed on the interconnection usage charges of 6 paise a minute to its customers, thus, raising the prospects of a tariff hike by the sector and cheering shareholders of telecom firms. “We expect Vodafone Idea’s leverage (net debt to earnings before interest, taxes, depreciation, and amortisation, or Ebitda) to decline to 10.5x by 2021-22 (FY22) after the expected price hike, but it will still be higher than the globally acceptable levels of less than 4x,” said Credit Suisse.

Analysts said the financial health of the sector is fast deteriorating as the free cash flow generation remained negative for the sector in the past four years. This led to high leverage for the mobile operators, but the investments in the sector are likely to remain high, given the capacity requirements with surging data growth.

Bharti Airtel, Reliance Jio, Vodafone Idea oppose free spectrum to railways

Reliance Jio said the Railways should not be permitted to offer commercial services like Wi-fi and voice and video communication.

Bharti Airtel, Reliance Jio, and Vodafone Idea have in tandem opposed allocation of the premium 700 MHz spectrum to Indian Railways for Wi-Fi and signaling purposes, citing the commercial value of such airwaves and their potential to earn revenue for the government.

The industry has said spectrum allotted to the Railways for captive use should not be utilised for commercial services for passengers (Wi-Fi and internet offerings) as such services should be kept for entities that hold a valid licence.

Reliance Jio said the Railways should not be permitted to offer commercial services like Wi-fi and voice and video communication, without obtaining authorisation under the Unified Licence. It should obtain spectrum for commercial use via auction like all other interested parties.

“We do not agree with the Indian Railways demand for reserving 15 MHz spectrum in the 700 Mhz spectrum band for LTE (long term evolution) based communication corridor. The spectrum in the 700 Mhz band should not be allocated to the Railways for radiocommunication systems between train and trackside (RSTT) due to its commercial use and being a backbone band for 4G-5G services,” Reliance Jio said in its response to the regulatory consultation paper.

Suitable allocation for such captive use should be in the 450-470 MHz spectrum band, it felt.

“The department of telecom (DoT) has rightly noted that considering the limited spectrum available in the 700 MHz band and the fact that this digital dividend spectrum has immense potential for coverage in wide and rural areas, the spectrum for Indian Railways may be explored beyond this band and that the spectrum in the 450-470 MHz seems most suitable for this purpose,” Jio said.

The operator, however, termed as “valid and legitimate”, the Railways’ requirements to provide mission-critical passenger safety services and applications, video surveillance through close circuit cameras in trains, along with video analytics.

“The Railways is a commercial organisation and it can very well take the requisite licences and auction acquired spectrum to offer commercial services like Wi-fi... to its customers under the applicable licence and service terms and conditions,” Jio said.

Business Standard

Data tariffs stabilise after 2.5 yrs, Airtel pips Jio in monthly data usage

An India Ratings report claimed that Bharti Airtel has overtaken Reliance Jio in average monthly data usage at 11 GB per user.

The proportion of data subscribers to the total subscribers has increased rapidly for Bharti Airtel and Vodafone Idea with increase in broadband customers and growing data usage.

The data subscribers inreased from 28-33 per cent in Q1FY19 to 41-44 per cent in Q4FY19.

At the same time, the share of broadband (3G+4G) increased to 31-33 per cent in Q4FY19 from 17-22 per cent in Q1FY19.

An India Ratings report claimed that Bharti Airtel has overtaken Reliance Jio in average monthly data usage at 11 GB per user.

While this augurs well for future revenue growth of the telcos, analysts feel that revenue recovery may continue at a slower pace as prorpotion of high average revenue per user (ARPU) subscribers in the data and broadband categories are low at 40-44 per cent and 30 per cent respectively at the moment.

The green shoots, however, are visible as data tariffs have stabilised since February 2019 after falling steadily for the last two and half years.

However, Reliance Jio's data tariffs remain at a discount of 25-30 per cent to incumbent telcos.

This has helped Jio to continue to garner market share, indicating that the competitive pressure has not yet subsided.

Business Standard

Airtel ties up with Ericsson to offer HD quality calling on 4G smartphones

Airtel will deploy the Ericsson Cloud VoLTE solution to deliver VoLTE services onto a customer data centre.

Bharti Airtel on Wednesday announced it has selected Swedish telecommunications manufacturer Ericsson to expand its pan-India voice over LTE (VoLTE) services to offer HD-quality calling over 4G smartphones and smart watches.

Airtel will deploy the Ericsson Cloud VoLTE solution to deliver VoLTE services onto a customer data centre.

"We remain committed to building a future-ready network as part of our network transformation programme 'Project Leap' and deliver best-in-class digital experience to our smartphone customers," said Randeep Sekhon, CTO, Bharti Airtel.

As part of "Project Leap", Airtel is offering innovative communication services.

The Ericsson Cloud VoLTE solution enables high-definition voice (HD voice) and provides modern communication service experiences across many types of devices, over LTE, Wi-Fi, and future 5G access.

According to the latest "Ericsson Mobility Report", India is expected to have more than 780 million VoLTE subscriptions by 2023.

VoLTE technology will also be the foundation for enabling 5G voice calls on different types of 5G devices.

"We are delighted to support Airtel by delivering our Ericsson Cloud VoLTE solution. We start today with expanding HD voice over LTE services across India, which will establish a platform to easily introduce new innovative services in the future," informed Nunzio Mirtillo, Ericsson's Head of Market Area, South-East Asia, Oceania and India.

Ericsson Cloud VoLTE is an industrialised solution to deliver VoLTE services onto a customer data centre Cloud.

Business Standard