The new, unified logo of Vodafone Idea

As Vodafone Idea unveils a new brand identity, the financial troubles facing the company has as thrown into question the very future of the Indian telecom operator. There has been speculation that American telco Verizon or online retail giant Amazon may infuse money into the operator, but such rumors have been quashed by the Indian company.

Nevertheless, the impending 5G spectrum auction — and the high-levels of capital expenditure it demands — may open an opportunity for a new player to enter the market, while also rescuing Vodafone Idea from financial doom.


Vodafone Idea finds staring at financial abyss after a Supreme Court bench headed Justice Arun Mishra earlier this month imposed liabilities of around Rs 55,000 cr on the company that was already struggling to stay afloat.

Vodafone Idea’s plight was well captured by Chairman Kumar Mangalam Birla six months ago when he said it made no sense to ‘throw good money after bad’ and the company would have to shut down if no compensatory efforts were made by the government in light of the judgment.

The statement is hardly an exaggeration of the situation at the once-profitable enterprise.

The average revenue generated per user has almost halved from around Rs 205 per month per user five years ago, while operating expenses have increased due to the addition of the 4G network, on top of 2G and 3G.

For the year ended March 2020, Vodafone Idea generated revenue of Rs 45,997 cr. At the same time, the company’s expenses were almost 50% higher.

At Rs 15,392 cr, financial costs — primarily interest on loans — were alone equal to about one third of the total revenue.

Another big chunk of expenses was related to the degradation and loss of value of its capital assets — such as network equipment, spectrum etc.. These costs, called depreciation and amortization charges, amounted to a whopping 24,356 cr.

These numbers can be better understood when compared to with corresponding items from Reliance Jio and Bharti Airtel.

First the top line: While Vodafone Idea generated revenue of around 46,000 cr during the year, Jio generated revenue of around Rs 54,400 cr and Bharti Rs 87,864 cr.

But the bigger differences were in the expenses.

While Vodafone Idea suffered expenses of Rs 15,393 cr related to its loans and borrowings, Jio showed financial expenses of only Rs 6,617 cr.

Bharti, whose revenue is nearly twice the size of Vodafone Idea, too reported a lower financial expense of Rs 12,382 cr.

Similarly, when it comes to expenses related to the depreciation of capital assets, Vodafone Idea’s number was Rs 24,356 cr, while the corresponding figure for Jio was Rs 7,396 cr. For Airtel, which has assets across the world, it was Rs 26,690 cr.

This was in contrast to the situation on actual running costs. Vodafone Idea’s network and IT cost was only Rs 10,992 cr for the year, while the corresponding figure for Jio was Rs 16,930 cr and that for Airtel was Rs 19,769 cr.

To cut a long story short, even without including the taxes and the AGR judgment by the Arun Mishra bench, Vodafone Idea’s total expenses were Rs 69,793 cr for the year on income of Rs 45,997 cr — a shortfall or loss of Rs 23,797 cr for the year.

The added liability of Rs 55,000 cr — as imposed by the Supreme Court judgment — will push this number up by around Rs 5,500 cr per year.

In other words, even while the company was teetering on the brink of a financial collapse, the Mishra bench’s decision to add to its woes may have pushed the company over the edge into certain financial destruction.


The dire situation financial faced by the company leaves its owners — Aditya Birla Group and Vodafone Plc — with only two choices.

The first is, as Birla said, to cut their losses and not to “put good money after bad”. In other words, don’t put more money into the loss-making company, but try to run it for as long as it would using its own revenues.

The second choice is to come up with a plan to turn its fortunes around. For this, the company has to generate at least Rs 75,000 cr of revenue per year, up from Rs 46,000 cr at present — implying a 63% increase.

This is possible only if the average amount paid by a user goes from Rs 130 per month or so to Rs 210 per month. This will require the company to sell more, especially in the data business.

Some of this realization on the part of the management is already visible in the company’s strategy. It has cut data prices aggressively, taking a leaf from Reliance Jio’s playbook, and is today India’s cheapest 4G operator.

Vodafone Idea today offers data at Rs 2 per GB under its double-data schemes, compared to the Rs 3.60 per GB charged by market leader Reliance Jio.

But the key question is, can it sustain this model?


If the company is to successfully follow this strategy to increase its revenue, it will need to invest more money into spectrum and/or towers.

It is in this context that the upcoming 5G spectrum auction assumes significance.

Even a modest 5G network will cost at least Rs 1.25 lakh crore on the equipment side and Rs 50,000 cr on the spectrum side. This will push up operating expenses further by increasing capital-related annual expenses (depreciation) by Rs 12,500 cr per year — Rs 10,000 cr on the equipment side and Rs 2,500 cr on the spectrum side.

Add to this the cost of money invested (in the form of 10% interest — Rs 17,500 cr per year), the added expense on 5G jumps to Rs 30,000 cr per year.

Assuming that there are some running costs that can be reduced futher, this will still require the company to hit a revenue run-rate of at least Rs 1 lakh cr per year to break even, more than 2x of its current revenue of Rs 46,000 cr.

In other words, this will require an average Vodafone Idea user to increase his monthly spend from Rs 130 per month at present to Rs 275 per month. But will he?


The present consumer base of Vodafone Idea can be divided into four categories. At the bottom are subscribers who use their phone for keeping in touch only.

They do not subscribe to even the cheapest unlimited offering (Rs 160/month), but use regular top-ups and spend only around Rs 40-80 per month.

5G will have no impact on this segment of subscribers and they will be unwilling to increase their expenditure only because their operator has started offering high-speed data services.

However, besides the above category, there are three more classes of users, two of which can be persuaded to spend more.

The first category are the voice + Whatsapp users (current spend around Rs 150 per month). A 5G launch will not have any impact on spends in this category, but the move can help upgrade more of them to unlimited packs by reducing the entry cost.

The second category is of the voice + basic entertainment users who use the basic unlimited voice+daily data packs. They spend around Rs 220 per month and use their phones for watching Youtube and other videos in addition to WhatsApp.

The final category is of premium users who are subscribed to double data plans, and spend around Rs 260 per month.

Taken together, the voice + unlimited data groups (last two categories) probably spend around Rs 230 per month. It is only these users that can be persuaded to increase their expenditure post-5G deployment.

However, even with the lavish data offerings that 5G would bring, most of these users would be unwilling to double their monthly spends.

At most, the ARPU of users on unlimited data plans can be nudged up from Rs 220 to Rs 275-290 per month by offering them more data. The key 5G opportunity, as indicated earlier, would be to upgrade more of category 1 and 2 users to unlimited users by making these plans more attractive.

However, even after all this, Vodafone Idea will still find itself in the Rs 200 ARPU range, well short of the targeted Rs 275-285.

To really generate the kind of revenue that is required to start making profits in the 5G era, the operator will have to go beyond targeting just the mobile phone. Instead, it will have to leverage the higher capacity of the 5G network to target a hitherto untapped devices — particularly smart TVs.

The number of smart TVs and smart set-top-boxes are exploding in India at a pace that far outstrips the capacity of the current wired broadband infrastructure to support, opening up a lucrative opportunity for wireless players.

But to cater to this market, an operator must be able to provide around 20 GB of data per day for a Rs 350-rupee monthly recharge. At present, Vodafone Idea offers a maximum of 4 GB per day at Rs 250 per month using 4G.

While such plans may not attract truly heavy users who will still go for wired connections, they will definitely attract a large number of light-to-medium smart TV users due to one key reason: Wired connections can never compete with wireless in terms of availability, ease of deployment and maintenance and up-time.

However, without making the above 5G investment, the owners of Vodafone Idea have only two options: Try to cut costs aggressively and turn the company into a low-cost, low-price player targeting low-end mobile phone users, or sell or merge itself with another player like Bharti Airtel or Jio.


If it does decide to go the 5G way, the key question is — will anyone, including the owners, risk investing another Rs 1-2 lakh cr in a company which is losing Rs 25,000 cr per year?

It is in this context that the example shown by Reliance Communications and Reliance Jio comes into prominence.

When Reliance Jio was building its 4G network, it could have purchased Reliance Communications — owned by Anil Ambani — and rolled out its 4G network under the RIM brand.

However, doing so would have also exposed it to all the regulatory and financial risks faced by RCom.

Jio resolved the issue by entering into sharing agreements with RCom — both for sharing the physical infrastructure such as fiber and the towers, as well as the spectrum, thus protecting itself from any negative fallout that may befall the other company. When RCom filed for bankruptcy, it did not affect Jio’s operations.

Vodafone Idea too can attract investments into its 5G venture through a similar structure. Any investor, whether it is Amazon, Verizon, Google or any other Indian group like Tata, L&T or Adani, can use Vodafone Idea’s existing network, towers and marketing structure to launch its own 5G service.

The new investor would need to put in only around Rs 10,000 cr for paying the initial installment of 5G spectrum, and can get almost everything else — including the retailing network and the brand — from Vodafone Idea.

The new player can then sell 5G services under Vodafone Idea’s brand and use its infrastructure by entering into a sharing and licensing agreement with the latter.

Such an arrangement protects the new investor from the financial and bankruptcy risks associated with Vodafone Idea.

Even if Vodafone Idea finds itself forced to shut down in the future, the new investor will still have his 5G spectrum, which can be sold to any other company or a similar sharing agreement entered. In other words, it will be safer for the 5G investment to come from a third party than from Vodafone Idea itself.

On the other hand, if the partnership works and the 5G service takes off, it can fetch good returns for the investor, while helping Vodafone Idea emerge out of the financial black hole that it finds itself in at present.

The question is, does such a player exist?