Even as shares of Vodafone Idea tanked 17% over fears that the company may shut down or file for bankruptcy, the latest numbers posted by the company show that it continues to invest in its network.
The correction in the stock price followed a renewed warning yesterday that the company may not be able to continue operations if it cannot get some relief from either the Supreme Court of the government as far as payment of fresh dues are concerned. The court also blasted the government today for delays in collecting money from Vodafone Idea.
The Supreme Court had, late last year, delivered a judgement that will require the cash-strapped operator to arrange to pay around Rs 53,000 cr in extra dues to the government.
“..material uncertainty exists that cast significant doubt on the company’s ability to continue as a going concern and its ability to generate the cash flow that it needs to settle, or refinance its liabilities including those relating to the SC AGR Judgement and guarantees as they fall due,” Vodafone Idea said yesterday in its quarterly update.
“Our ability to continue as going concern is dependent on positive outcome of the application for modification of the Supplementary Order before the Hon’ble Supreme Court and subsequent agreement with DoT for the payment in instalments after some moratorium and other reliefs.”
This was largely in line with a statement by company chairman Kumar Mangalam Birla recently that his group does not believe in ‘throwing good money after bad’ and was ready to shut shop rather than invest another 50,000 cr to prop up a business that has already run up losses of tens of thousands of crores in recent quarters.
INVESTING FOR THE FUTURE?
Yet, despite all this, the latest numbers revealed by the telecom operator yesterday (Thursday) show that it continues to invest into expanding its network.
During the three months from October to December, the company spent 3,330 cr on capital expenditure, mostly on expanding its network. In comparison, Bharti Airtel spent only Rs 2,542 cr on its India telecom business.
The Oct-Dec spend was also 55% more than what Vodafone Idea spent in the preceding three months (July-September 2019).
Vodafone Idea has been expanding its wireless broadband base stations at a decent pace for several quarters, and has not eased up on the pace of expansion even after Supreme Court imposed the heavy liabilities in October last year.
According to the numbers released yesterday, Vodafone Idea added 12,015 new broadband base stations during the three months from October to December, taking the total wireless broadband locations to 4.17 lakh.
This is not far behind Bharti Airtel, which added around 18,000 such base stations to take its total to 4.62 lakh.
It should be kept in mind that Vodafone Idea is also rejigging its base stations, taking a Vodafone 4G base station from a location where Idea 4G is present to another location where neither is present.
Such rearrangements also increase the size and capacity of the network, but do not show up as base-station additions. In fact, most of Vodafone Idea’s network related work has been focused on re-using and redeploying duplicate network equipment as part of the merger of Vodafone and Idea networks.
As a result of this, the company actually witnessed a decline in the number of broadband base stations till about March 2019. For the three months from January to March, for example, the number of 3G/4G base stations operated by Vodafone Idea fell by 4,894. This was because the company was taking down one set of 3G and 4G equipment in places where it had two — one for Idea and one for Vodafone — and shifting all traffic onto one network.
However, since the Apr-Jun period, the company has again started expanding its wireless broadband network, and has since added over 45,000 broadband base stations to its network, taking the total to 4.17 lakh.
Even the number of physical towers too has started going up, after declining till March 2019.
As of March end, the company had only 1.56 lakh towers with any kind of broadband equipment — whether 3G or 4G — compared to 1.73 lakh for Airtel.
Over the next six months, Vodafone Idea again started putting wireless broadband base stations on new towers. It added made around 2,500 towers broadband enabled in the six months from April to September.
The pace of broadband enablement of new towers actually picked up from October, with the company putting such equipment on nearly 2,000 more towers in these three months. Part of it may be due to favorable weather during the winter months.
While these numbers are only half that of Airtel, they don’t reflect the capacity addition being implemented through the rearrangement and rejigging of the base stations and network consolidation.
This can be understood by looking at the number of base stations added and comparing it to the capacity added.
As of September 2018, the company had 3.66 lakh broadband base stations. While this number has only increased by 14% since, the actual data carrying capacity has increased by around 100% due to the rejigging of these base stations as part of the network consolidation.
The company had 73,000 physical towers/locations in which both Vodafone and Idea had equipment. Out of these, one set of equipment has been removed from around 58,000 sites as of December, 2019, it said.
“Integration is progressing well and is expected to complete by Q1FY21. As at December 31, 2019, we had completed network integration in 86% of total districts,” it said.
FUTURE OPTIONS
Now that the chances of getting any kind of relief from the Supreme Court has dimmed, the company has broadly four options before it.
First is to lobby the government hard so as to win some kind of financial relief or reprieve that would help it continue operations and avoid shutting down. However, this has been opposed tooth and nail by Reliance Jio.
The second is to try to raise the money required via its parents, the Aditya Birla Group and Vodafone plc of the UK. This seems difficult because of the poor condition of the Indian telecom market.
The third is to offer itself for sale or a merger, either to Mukesh Ambani’s Reliance Industries or Sunil Mittal’s Bharti Airtel.
The final option is to file for bankruptcy. However this option will almost inevitably mean that the current shareholders may have to walk away with nothing, and is therefore the last option that the company is likely to consider.
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