Vodafone Idea told shareholders today it is hopeful the government will work out ways to help the telcom sector, which is reeling under unsustainable financial duress exacerbated by the pandemic.
In a letter prefacing the company’s annual report 2020-21, chair Himanshu Kapania said: “Vodafone Idea is hopeful that the government will provide the necessary support to iron out structural issues and help companies generate reasonable returns on their massive investments.”
However, Kapania added that the company is “disappointed on the Indian Supreme Court rejecting [the] plea of telecommunication service providers’ to re-calculate the Adjust Gross Revenue dues”.
Service providers have to pay the so-called AGR, a government fee for the licence issued and the facilities offered, based on the revenue the companies earn. Vodafone Idea is currrently awaiting the government’s decision on its own financial liability.
Vodafone Idea has a debt of INR1.9trn ($26bn), which includes INR1.06trn in deferred spectrum payment obligations, an AGR liability of INR621.8bn due to the government, and INR234bn in liabilities to banks and financial institutions.
India’s Supreme Court on 23 July rejected the modification application by service providers, including Vodafone Idea, to let the Department of Telecommunications correct arithmetical errors in the computation of AGR demands.
The service providers subsequently filed a review petition which is yet to be heard in the Supreme Court.
Some positive news
The letter to Vodafone Idea shareholders further added that despite a “challenging operating environment [caused by] unsustainable product pricings and intense competition aggravated by the COVID-19 pandemic, the company is “sailing through”.
This positive news is in part due to increasing digital penetration, which has been further boosted during the pandemic. Kapania identified this as “a massive opportunity for [the] telecom industry, especially when the pricing revives in future”.
He added that increasing content consumption, especially through video, and social media usage is driving strong demand for high-speed internet.
Vodafone Idea is now focusing on driving 4G penetration in India to increase average revenue per user (ARPU). The telcom company is also strengthening its business services segment, “particularly in the fast-growing segment of Internet of Things and cloud services segment”.
The chair’s opening address also informed shareholders that the company is in the middle of a cost optimisation exercise to achieve savings of INR40bn. The exercise, along with other initiatives, will boost revenue and profitability.
In mid-afternoon local trading, shares of Vodafone Idea traded at INR8.00, up 10.34% on the National Stock Exchange.