VIL falling behind over subscriber churn, low network investment: Analysts

Telecom operator Vodafone Idea is losing competitive position due to continuous reduction in subscribers, low investment in network and rising debt, market analysts said on Monday.

The debt-ridden telecom firm on October 30 reported a consolidated loss of Rs 7,218.2 crore for the quarter ended September 2020. Its subscriber base declined by around 4 crore on a year-on-year basis to 27.98 crore while the debt stood at Rs 1,15,940 crore.

Vodafone Idea (VIL) has estimated statutory dues liability of Rs 65,440 crore.

"VIL is the weakest private telco. While AGR extension is a short-term breather, its survival hinges on quick capital infusion and tariff hike or floor tariff implementation.

"The need for capitalisation is of paramount importance mainly due to its lagging spends on network, coverage gaps and continued churn," ICICI Securities said in a report.

The board of VIL has approved fund raising of Rs 25,000 crore, which according to the company's Managing Director and CEO Ravinder Takkar is likely to be concluded in the next two-three months.

ICICI Securities' report said the active subscriber base of VIL declined even more sharply by 1.18 crore to 26.12 crore.

An e-mail query sent to VIL did not elicit a response.

Motilal Oswal Retail Research said the company had a weak cash position of around Rs 1,720 crore as of the second quarter of financial year 2021.

"VIL is losing its competitive positioning with the continuous subscriber churn. Furthermore, a weak liquidity position has restricted its ability to invest in networks, which has led VIL to focus on 16 out of 22 circles. This could limit growth and further erode its competitive position," Motilal Oswal said in a report.

It added that the last price hike has had a limited benefit for the company.

"...if we assume no market share loss, our workings indicate VIL needs a around 70 per cent average revenue per user (ARPU) hike merely to fulfill its interest obligation, capex, and AGR installment dues in financial year 2022.

"With continued churn in subscribers due to network quality issues, improvement in ARPU is not translating into revenue benefits," it noted.

VIL's capital expenditure (capex) in the second quarter ended September 30, 2020 stood at Rs 1,040 crore.

A JP Morgan report said persistent subscriber losses and muted capital expenditure suggest the bottom is some time away on network quality and ability to hold on to market share for VIL.

"Weak 4G additions (15 lakh) despite rebounding smartphone availability suggests weaker-than-expected ability to convert its voice subscribers to data.

"Falling consumption metrics (minutes of usage, data per subscriber) suggest loss of relevance as a primary SIM and suggest continued share slide," JP Morgan said.

The report further said capex at VIL remains subdued which is likely to put it at a further disadvantage compared to competitors on future market share, particularly among high ARPU users and markets with weaker capacity.