Vodafone Idea’s Struggle For Survival, AGR Issue Delays Rs. 25,000 Crore Fundraising. Why Is It Crucial For Vodafone To Close Debt Funding From Banks And Will The Govt Step In?

When Vodafone Idea, Vi raised ₹18,000 crore through a follow-on share sale earlier this year, it was like a breath of fresh air for a company gasping for survival. And for a brief moment, it seemed like the ailing telecom giant, jointly owned by Vodafone Group and the Aditya Birla Group, was on the path to recovery but sadly this was not the case.

Vi’s journey over the years is marked with huge ups and downs. Once a major player in India’s booming telecom market, the company is now battling significant challenges—mounting debt, dwindling subscribers, and a tough competitive market. While it has shown some signs of recovery—narrowing losses and strategizing on capital expenditure—the recent delay in its ₹25,000 crore debt-funding plan could bring its fragile turnaround to a grinding halt.

The Indian telecom industry has transformed dramatically since Vodafone rebranded itself from Hutch in 2007. From explosive subscriber growth to fierce pricing wars, the market has been anything but stable. The entry of Reliance Jio in 2016 further disrupted the scene with ultra-low tariffs, forcing established players like Vodafone and Idea to scramble for relevance. The merger of the two companies in 2018 was a desperate attempt to stay afloat, but even that hasn’t stemmed the tide of challenges.

Addressing the Elephant in the Room

The latest setback comes from the Supreme Court’s dismissal of Vi’s curative petition on its adjusted gross revenue (AGR) dues. The telco owes a whopping ₹70,320 crore, a burden that has made lenders wary. Banks are in a “wait and watch” mode, seeking clarity from the government on potential relief measures, such as waivers on bank guarantees or equity conversion of some dues.

This delay couldn’t come at a worse time. Vi urgently needs the ₹25,000 crore funding to execute its ambitious ₹50,000-₹55,000 crore capex plan over the next three years. Without this, expanding its 4G coverage and rolling out 5G in critical markets—a necessity to compete with Reliance Jio and Bharti Airtel—will remain a pipe dream.

The stakes are incredibly high. Vi faces immediate liabilities of ₹29,000 crore in March 2026 and ₹43,000 crore in March 2027 when the government’s moratorium ends in September 2025. The company has hinted at the possibility of a debt-to-equity conversion by the government to manage cash shortfalls, but such measures take time and often come with strings attached.

The telco is also pushing for the removal of bank guarantee requirements for spectrum purchased before 2022, amounting to ₹24,746 crore. While this could provide temporary relief, it’s far from a long-term solution.

Why Closing Debt Funding is a Lifeline for Vodafone Idea

For Vodafone Idea (Vi), raising ₹25,000 crore in debt funding isn’t just a financial maneuver—it’s a matter of survival. With declining subscribers, mounting losses, and intense competition from giants like Reliance Jio and Bharti Airtel, this funding is crucial to help the telecom operator sustain and expand its network and infrastructure investments.

While Vi has managed to raise ₹24,000 crore this year, including a follow-on offer and preferential share issue, the company still has a steep hill to climb. Its financial health is precarious, and without this debt funding, it risks losing the ability to compete effectively in a highly aggressive market.

To its credit, Vi has started leveraging its recent equity funding to upgrade its network. In September, the company inked a $3.6 billion deal with Nokia, Ericsson, and Samsung for network equipment over the next three years. As a result, it increased its 4G data capacity by 14% and expanded its 4G coverage to reach an additional 22 million people, covering a population of 1.05 billion by the end of September 2024.

The company has ambitious plans to launch 5G services this financial year, a move necessary to remain relevant in the fast-evolving telecom market. However, its rivals are already miles ahead in the 5G race, and this gap is costing Vi heavily in terms of subscribers.

Subscriber Woes

Still, the numbers paint a sobering picture. Vi’s subscriber base has plummeted to 205 million as of September 2024, down from 219.8 million a year ago. More concerning is the drop in 4G subscribers, which fell to 125.9 million in the second quarter from 126.7 million in the first quarter.

This decline can partly be attributed to price hikes, which led some subscribers to switch to state-owned BSNL. Although this trend appears to be reversing, the damage has been done. The company also reported a net loss of ₹7,176 crore in the September quarter, higher than the ₹6,432 crore loss in the previous quarter, underscoring its fragile financial position.

Debt Funding, A Critical Need

Vi’s immediate priority is to secure additional funding to arrest its subscriber decline and boost its network investments. The company has earmarked ₹8,000 crore in capital expenditure for the second half of this financial year, a crucial step to strengthen its infrastructure.

However, progress has hit a snag. Banks, wary of the Supreme Court’s recent rejection of telecom operators’ curative petitions on adjusted gross revenue (AGR) dues, are holding back. Vi owes ₹2.12 lakh crore in payment obligations to the government and has ₹3,250 crore in debt from financial institutions.

CEO Akshaya Moondra acknowledged in a recent earnings call that the AGR liability reduction wasn’t part of the business plan submitted to banks but admitted that lenders are closely watching developments on this front.

Vi has been actively negotiating with the government to address its AGR liabilities and push for the removal of bank guarantee requirements. While this could ease its financial burden, the timeline remains uncertain. Earlier this year, Moondra had expressed hope of closing the bank funding within eight weeks. However, the Supreme Court ruling and the ongoing decline in subscribers have complicated matters.

Vi Reduces Data Benefits in ₹23 Prepaid Plan Amid Industry Turmoil

In an “emergency” move that may not sit well with budget-conscious customers, Vodafone Idea (Vi) has trimmed the data benefits on its ₹23 prepaid plan previously offering 1.2GB of daily data, now provides only 1GB—a reduction of 200MB, while the price remains unchanged.

Introduced in November 2023, this plan was a go-to option for users needing a quick data top-up. Interestingly, even when mobile tariffs increased in July, this affordable pack stayed untouched—until now. The revised plan, while still economical, reflects the financial strain and strategic recalibrations the telco faces as it attempts to stabilize its operations.

Vi customers might need to brace themselves for more changes, as the company has hinted at additional tariff hikes. CEO Akshaya Moondra recently emphasized the need for fair pricing, suggesting that heavy data users should pay more for their services. This shift aims to balance revenue generation while ensuring affordable access for all.

Despite efforts to improve financial health, Vi’s previous tariff hikes between 11% and 24% in July backfired, leading to a decline in both its total customer base and 4G users. The total subscribers dropped from 210 million to 205 million, and 4G users decreased from 126.7 million to 125.9 million—a clear sign that the price-sensitive Indian market demands a careful balancing act.

The question that everyone is asking – will the government intervene?

The telecom sector’s shaky dynamics have made government intervention increasingly likely. According to Navin Killa, Head of APAC Telecommunications at UBS Securities, the government may soon take decisive steps to stabilize Vi, as maintaining a competitive market with at least three private players (alongside state-run BSNL) is in the national interest.

Recent government measures, such as deferred spectrum payments and adjusted AGR dues, demonstrate a willingness to support the telecom sector. However, Telecom Minister Jyotiraditya Scindia has firmly stated that the AGR verdict, which dismissed curative petitions from telecom operators, will stand. This ruling, involving a hefty ₹1.47 lakh crore liability, continues to weigh heavily on companies like Vi.

Killa predicts that key developments could unfold between June and December 2025 when many moratorium periods end. The government’s actions during this period could determine whether Vi can survive in the long term.

What Lies Ahead?

Experts believe further tariff hikes could be on the cards, though they may not be as aggressive as previous rounds. Instead, differentiated pricing models—charging premiums for features like roaming or exclusive content—could help operators increase revenues without alienating their customer base.

Given the government’s 23.15% stake in Vi, there is a vested interest in ensuring its survival. Analysts believe the government may convert part of the dues into equity, a move that could provide some breathing room. However, this also raises questions about whether public funds should continue to prop up a private entity struggling in a competitive market.

Vi’s survival hinges on its ability to secure funding and execute its capex plans effectively. Without these, it risks falling further behind its rivals, hemorrhaging more customers, and eventually becoming irrelevant in a rapidly evolving telecom sector.

The Final Words

The telecom sector is a game of scale, and without substantial investments in network upgrades, Vi risks falling further behind its competitors. The ₹25,000 crore debt funding is not just a financial necessity but a prerequisite for the company’s survival.

Vi is at a crossroads. The coming months will determine whether it can secure the funding needed to remain competitive or whether it will continue its downward spiral. For Vi’s 205 million subscribers—and for the broader telecom market—the stakes couldn’t be higher.

While Vi struggles the focus remains on the government’s willingness to offer additional support. With competitors like Reliance Jio and Bharti Airtel miles ahead in market share, 5G rollout, and customer trust, Vi must act swiftly to avoid further erosion of its subscriber base.

For now, customers and industry players alike are left wondering, Can Vodafone Idea pull off a turnaround, or is the clock ticking on India’s most embattled telecom operator?