Vodafone races against time to salvage India deal

[MUMBAI] Vodafone could soon have another tough call to make in India. Since the British mobile giant unveiled a merger of its local business with Kumar Mangalam Birla's Idea Cellular in early 2017, the stock price has plummeted by about 90 per cent. As the company focuses on generating synergies, rivals are adding 4G users faster. More capital may be necessary.

The creation of Vodafone Idea, 44 per cent owned by the UK company, was in response to a bruising price war. The enlarged group was briefly India's top wireless provider with over 400 million subscribers. The figure has shrunk to 320 million. Mukesh Ambani's mobile upstart Jio has taken command of the market using the financial heft of its Reliance Industries parent to offer free voice calls and ultra-cheap data.

There was little doubt Jio would shake up the industry. The surprise is that rival Bharti Airtel, backed by Singapore Telecommunications, is making a mark, too. The result for Vodafone Idea has been a sharp slowdown in adding the most lucrative customers. Its number of 4G subscribers grew just 5 per cent between the fourth quarter and the first quarter, compared to a rate of 15 per cent about one year earlier.

In some ways, the merger has been a success. The company cut the delivery time for cost savings to two years from four and says it has already come through with about 70 per cent of the US$10 billion promised. More savings are likely, too. But disruption from combining the Vodafone and Idea networks has led to an increase in dropped calls. The deterioration of service quality is a turnoff for high-value customers.

Vodafone Idea raised US$3.6 billion in a deeply discounted rights issue earlier this year. At this rate, another cash call is likely. The company cannot count on data prices becoming rational any time soon. Net debt stands at US$14 billion, a whopping 14 times trailing Ebitda. Selling telecom towers and fibre assets should help reduce borrowing levels. Britain's Vodafone is also prepared to cash in on its separate Indian infrastructure interests to back the operator if needed. It's now's a precarious race against time.

CONTEXT NEWS

Vodafone Idea shares closed down 3.6 per cent on Aug 27 at 5.30 rupees. They have fallen about 90 per cent since Vodafone announced plans in March 2017 to merge its Indian business with Idea Cellular.

Before the deal was completed in September 2018, the shares were traded as Idea Cellular.

Idea Cellular is 44 per cent owned by Britain's Vodafone and 27 per cent by Aditya Birla Group.

REUTERS