Vodafone Idea rings in $3.6 billion gear deal with global vendors

Marking Vi's first-ever tie-up with Samsung, new deal part of $6.6 bn capex plan

Just a day ahead of the hurriedly called Vodafone Idea (Vi) meeting meant to soothe the nerves of investors amid the company’s sliding stock price and a negative narrative around it, the telco announced a $3.6-billion (Rs 30,000 crore) deal with global equipment makers Nokia, Ericsson and Samsung for the supply of network gear over a three-year period.

The mega deal announcement on Sunday may have been a balancing act before the meeting with investors and analysts scheduled for Monday, analysts said. The Vi stock hit a 52-week low last week when the Supreme Court rejected the curative petition of telcos seeking a review of the 2019 ruling of the court on payment of adjusted gross revenue (AGR).            

While there’s lack of clarity on how the latest Vi deal would be funded against the backdrop of its Rs 2.09-trillion debt including deferred spectrum payment to be made to the government, the firm said the transaction was part of its total capital expenditure target of $6.6 billion (Rs 55,000 crore) over the next three years.

Vi’s network equipment deal would help the telecom provider expand its 4G coverage as a priority, the company said in a statement. The deal, the first of this magnitude in several years for Vi, will also enable the telco to begin 5G rollout in key circles, two years after rivals Reliance Jio and Bharti Airtel did that. The supplies against the new long-term awards for Vi are expected to start in the third quarter (October-December). Vi CEO Akshaya Moondra had said earlier this year that the company’s 4G coverage will become competitive by May-June 2025 in 17 priority circles. After the deal on Sunday, he said: “We have kickstarted the investment cycle. We are on our journey of VIL 2.0 and from hereon, VIL will stage a smart turnaround to effectively participate in the industry growth opportunities."

This is the first time that Vi is sourcing equipment from South Korean major Samsung. Acquiring Samsung as a partner may have a positive impact in terms of instilling confidence among potential lenders to the debt-ridden telco.

“Being able to rope in a new international partner at a time when the company is financially struggling is a sign that others recognise there is enough potential for Vi to turn around. This may be able to convince banks,” an industry insider said.

Vendors are also learnt to be in the process of granting the telco more equipment on credit, even though they may be cautious, he added. “It’s not clear whether there is a credit component in the latest deal,” he said.

Vi is currently funding its capex plans out of the Rs 24,000 crore of equity it has raised in 2024. For the long-term capex, it is engaged with its existing and new lenders for Rs 25,000 crore of fund-based and Rs 10,000 crore of non-fund-based loans.

In contrast to Vi, other telecom service providers—Reliance Jio and Bharti Airtel—have been striking equipment deals at a much faster clip to expand their networks and the customer base. 

Jio and Airtel reportedly signed multi-billion dollar deals with all three global vendors in the last two years for 5G contracts.

Analysts see a silver lining in the Vodafone Idea deal announcement.

"From a capex standpoint, the announcement is a welcome move for the telecom sector. Capex in the sector has significantly dried up now, 2-years after the 5G rollout began. Most of 5G spends have happened and now the sector is focusing on its monetisation.  Prashant Singhal, TMT Leader - Emerging Markets, and Partner in a member firm of EY Global said.

Others said the deal was the only way forward for the company to begin long-pending network upgrades. "Vi had been lacking significantly with regards to capital expenditure for the past four to five years. Even before rivals began to focus on their 5G rollouts, Vi had been spending less on their 4G network," a senior analyst, who didn’t want to be named, said.

Vi said it had implemented 'quick win' capex over the past three months by way of more spectrum deployment on existing sites and also the roll out of some new sites. "This is resulting in a 15 per cent boost in capacity and an increase in population coverage by 16 million by end September, 2024. We are already witnessing an improvement in customer experience in select geographies," Vi's statement read.

This move is in line with the company's plans to guard against losing 4G customers. "While a large chunk of subscribers have moved to 5G, there remains very limited use cases for most people. The company recognizes it is important to have a strong 4G base. Vi had already been losing 4G customers because of network availability issues. Also, most of the 4G equipment being put in now is cost effective since they can be upgraded to 5G easily," the analyst mentioned above, said.

At 126.7 million, 4G users made up 60 per cent of Vi's customer base of 210.1 million subscribers as of the April-June quarter (Q1) of FY25. But while the company added to its 4G numbers for the 12th successive time during the quarter, Vi lost 2.5 million subscribers overall to rivals. After losing high-end customers to Jio and Airtel, Vi is now facing the spectre of 2G customers abandoning it for state-run telecom BSNL which has not raised tariffs, while all three private telcos upped prices in July.

Order history
 

February 2017: Erstwhile Vodafone India awards Rs 1,420 crore multi-year managed services contract covering several telecom circles to Nokia

February 2019: Ericsson announces orders for 5G-ready LTE equipment across eight circles from Vi

March 2019: Nokia deploys advanced LTE equipment, including Single RAN Advanced to Vi

April 2023: Vi grants Rs 230 crore optical transmission equipment network order in Gujarat, Maharashtra, and Madhya Pradesh, Chhattisgarh circles