Vodafone Idea's 5G entry faces risk of 5G being a marketing gimmick

Vodafone Idea Limited risks its 5G being viewed as more of a marketing gimmick, with investments largely done to prevent churn than create a better-quality network, BofA Securities said in a report.

VIL is the telco that bid for the least amount of 5G spectrum and acquired 5G spectrum in 17/16 circles across the 3300MHz/26GHz bands out of the 22 circles. It won 850 MHz in 3300 MHz band vs 2,200/2,440Mhz by Bharti/Jio and 5,350 MHz in 26 GHz vs 17,600/ 22,000Mhz by Bharti/Jio.

BofA Securities said given VIL`s weaker balance sheet, it believes that in the medium term, VIL could be at a disadvantage compared to Bharti/Jio in the 5G space given lack of adequate spectrum.
`We also see risks of its 5G being viewed as more of a marketing gimmick, with investments largely done to prevent churn than create a better-quality network.

`We view the company as at maximum risk of losing its high-end subs over time if other telcos have better 5G networks,` the report said.

Nomura said in a report that external fund-raise is key for 5G rollouts/market share defence for Vodafone Idea.

`Vi spent Rs 188 bn in the recent spectrum auction to acquire 5G spectrum in its priority circles. However, with Vi`s current cash EBITDA run-rate (Rs 84 bn) insufficient to meaningfully increase

capex, large upcoming debt repayments (Rs 70 bn) and also delays in external fund raise, we think Vi`s 5G rollouts would remain constrained in the near term,` Nomura said.

Impending 5G rollouts by peers could lead to accelerated market share losses for Vi, in its view.

Goldman Sachs said in a report, `Vodafone Idea`s EBITDA, though rising, remains below what we believe the company would require to meet its repayment obligations - we estimate a Rs 40 bn of cash shortfall for Vodafone Idea by June 2023 (assuming all debt repayable). Subscriber base continues to decline, and with a weak FCF and balance sheet profile constraining Vodafone Idea`s ability to meaningfully increase capex, we foresee further risks to the company`s market share.`

`Vodafone Idea continues to lose subscribers: -3.4 mn in 1QFY23 and was flat QoQ. Subscriber churn increased 10bps QoQ to 3.5 per cent. Further, we do not expect VIL`s net subscriber loss trend to have improved in June 2022 on month-on-month basis,` Credit Suisse said in a report.

`Based on April/May-22 TRAI numbers and 3.4mn net subscriber loss in 1QFY23, we estimate VIL to have lost 1.1 mn subscribers in June-22, which would be higher than 0.8 mn in May-22,` it added.

Post the spectrum auction, Vodafone Idea said in a statement, `We actively participated in the spectrum auction to strengthen our pan-India 4G footprint and embark on our 5G roll-out journey in the country in line with our long term vision. We have successfully acquired mid band 5G spectrum (3300 MHz band) in our 17 priority circles and mmWave 5G spectrum (26 GHz band) in 16 circles, which will enable us to offer a superior 5G experience to our customers as well as strengthen our enterprise offerings and provide new opportunities for business growth in the emerging 5G era`.

`The additional 4G spectrum acquisition in three circles of Andhra Pradesh, Karnataka and Punjab will further improve the customer experience; an area where we have been consistently leading the league tables, as per various third party reports, over last several quarters. We believe that the above spectrum acquisition will enable us to strengthen our position in our key markets and it aligns well with our long term strategic intent.

With this, we now have a solid portfolio of spectrum across all bands in all our priority circles. We also have the advantage of leveraging the global experience of Vodafone Group which has proven expertise in deploying 5G in many markets. We will continue to invest in our future ready network to upgrade it for roll out of 5G services to our customers in future,` the company said.