Editorial – May 2022

DoT will get 33 pc stake for conversion of its interest dues on spectrum and AGR in Vi. The dues have been computed at Rs 16,133 crore for which the effective date of January 10, 2022 has been taken. This restructuring comes on the back of government’s comprehensive telecom reform package that was announced in September 2021 to improve the liquidity of private telcos. Despite its considerable financial involvement, the government will have no representation on the Vi board. It will follow a non-interference policy, however it will protect its investments and keep a check on related party transactions. Exactly how these ends will be achieved, it has not been stated. The promoters (Vodafone & Aditya Birla group) expect the conversion to be concluded in the coming weeks.

For its part, the promoters have also infused Rs 4,500 crore raising their equity to 74.99 per cent. Whenever DoT is issued equity post conversion, the promoters’ equity would be correspondingly reduced and be maintained upto 50 per cent in total.

Vi received another liquidity injection with the DoT directions for returning bank guarantees, worth Rs 16,000 crore; release of margin money will be used for debt servicing thus relieving the pressure on cash accruals from operations.

In a conference call with investors, Vi has expressed confidence of benefitting from the trend of tariff hikes. Infact, they hope for more tariff hikes. They expect ARPU to go upto atleast Rs 200 in the short term and then further increase upto Rs 250 or higher in the longer term. Increasing tariff has improved the company’s Ebitda, its losses have narrowed, and quarterly revenues increased. Vi will focus capex on 17 circles from where it says 98 per cent of its revenue comes. It is betting on increased conversion of 2G into 4G which will offset churns seen in entry level plans due to tariff interventions. Going forward, the company sees a consumer trend of SIM consolidation due to moving up the entry level tariff plans from Rs 35 then Rs 49, Rs 79 and now to Rs 99.

The government response will be worth watching on two fronts: the clamour for increasing the pace of tariff hikes and second, related party transactions in Indus Towers.