Another Bailout, Same Headwinds: Can Vodafone Idea Break the Cycle?

For the better part of the past decade, Vodafone Idea (Vi)—once a telecom heavyweight—was written off as a sinking ship as it battled mounting debts and eroding subscriber base. Yet it continues to stay afloat—not due to its market performance but a series of life-support doled out by the government.

Now, with the government becoming the single largest shareholder in the company with nearly 49% stake, the question looms: is saving Vi worth the effort, and does the company have any realistic chance of revival?

At the end of March, this year, Vi announced that the Ministry of Communications has decided to convert some of its outstanding spectrum auction dues worth Rs 36,950 crore payable between 2025–26 and 2027–28 into equity shares.

With this, the Centre—policymaker and the company’s largest creditor—now holds almost 49% stake in the company.

The equity conversion was the second instance of the government agreeing to pick up equity in the debt-ridden telco. In February 2023, the government had agreed to convert the interest arising from deferment of AGR and spectrum instalments worth about Rs 16,130 crore into equity.

The government has stressed that the measures were to ensure a competitive telecom sector with three private players, along with state-run Bharat Sanchar Nigam (BSNL). Allowing a third player to die would not only harm the government’s chances of recovering its dues but also hurt consumer interests by reducing competition and potentially creditor banks.

While the move has been largely welcomed citing that the government had no other option, critics have raised the question whether the government is artificially propping up competition and should it act as a stakeholder in a struggling private business?

Fading Signals

Vodafone Idea was formed in 2018 following the merger of Vodafone India and Idea Cellular, creating what was then the country’s largest mobile operator with 35% market share and a subscriber base of about 430mn users. What promised to be the strongest telecom player, however, lost steam quickly as the company struggled to maintain its footing in the face of fierce competition from Mukesh Ambani-led Reliance Jio and Sunil Bharti Mittal’s Bharti Airtel.

Its woes were exacerbated by the Supreme Court’s ruling on adjusted gross revenue (AGR), which imposed a substantial financial burden on the company.

Since the merger, Vi has been losing its subscribers to rivals with a current market share of just about 18%.

According to the Telecom Regulatory Authority of India (TRAI) data, Vi had a subscriber base of 207.26mn at the end of December 2024. In 2017-18, Vi’s consolidated net loss stood at Rs 41,682mn, as against Rs 3,997 million for the previous year.

Its net losses since then have ballooned and as per latest available data, the group incurred a loss of Rs 202,173mn for the nine months ended December 31, 2024 and its net worth stood at negative Rs 10,20,109mn.

Despite these numbers, the government’s move to convert dues into equity, without putting in fresh capital, has been welcomed as a concrete step that eliminates existential concerns for 2.5 years. The argument is that letting Vi collapse would be worse as it would lead to a duopoly in the market and eliminate competition.

“Government did not really have any other option. Plus this is not a sudden move, intent has been there for some time now. In 2021, the telecom reforms announced cleared the way for this action. At the time as well, it was obvious that while available for all, these measures will help Vodafone Idea survive,” says Jaideep Ghosh, a telecom-sector expert and former KPMG partner.

Echoing similar views, Ashwini Mahajan, national co-convenor of Swadeshi Jagran Manch (SJM), a pressure group, adds that it was a necessary intervention. “We saw this in aviation after one airline went bankrupt, fares soared, service dipped. More competition means more benefit to consumers,” he says.

Wrong Number

Some experts, however, have argued that the better path might have been to let the market take its course.

“One way to go about it could have been to let it go insolvent because it has huge debts and put it on the market and see if there is a buyer. There was a possibility of the entry of a more efficient player,” says Payal Malik, former economic adviser at the Competition Commission of India (CCI) and now a visiting professor Indian Council for Research on International Economic Relations.

There is also some worry over Vi turning into another BSNL. The PSU is finally showing signs of revival and reported a profit of Rs 262 crore in the third quarter of 2024-25. This has come after the Centre has pumped in over Rs 3 lakh crore into the telco since 2019 in the form of three revival packages.

“With the government getting equity, will it be able to change Vi’s business model? We have to see whether Vi will be a credible competitor. They are continuously seeing declines in subscribers, Arpu [average revenue per user] is still low and they have not launched 5G yet,” says Malik.

A former senior bureaucrat who was involved in the planning of strategic disinvestment of PSUs during the first term of Narendra Modi government, bluntly said the move does not make sense.

“The government has been pumping in so much of taxpayers' money in BSNL but hasn’t been able to reap the benefits. If the concern is competition, then why not have a similar rescue framework for the aviation sector, which is effectively a duopoly now?” he says.

SJM’s Mahajan disagrees. He says it’s not the first instance when the government has moved to save a private company. “Government saved Yes Bank, was it a wrong move? And in the case of public-sector banks, mired by NPAs [non-performing assets], the government had put in additional money. See the value of that investment today. In Vodafone it has put no additional money, and there are bright chances of its revival.”

Debt Burden

Still, Vi’s road to recovery is steep. Its debt grew by 7% to Rs 2.17 lakh crore in the December 2024 quarter, primarily due to higher statutory liabilities. Of this, Rs 2.14 lakh crore is owed to the government, and Rs 2,300 crore to banks, according to a document posted by the company on the stock exchange.

According to Malik, CCI had done a study that recommends a rule of three i.e. for any oligopoly market, there should be at least three players. However, these should be three credible players.

“I think this [equity conversion of dues in Vi by the government] is an artificial method to keep three players in the market.” she says.

While the company has raised Rs 26,000 crore between March 2024 and February 2025, including the Rs 18,000-crore through its follow-on public offer (FPO) in April 2024, it has failed to raise additional funding from banks.

The company’s recovery plan was progressing well after the successful FPO in April 2024 and subsequent tariff hikes in July 2024. However, the rejection of telcos’ curative plea on AGR by the Supreme Court in September stalled its debt-raising process. The lenders insisted on waiver of bank guarantee (BG) requirements by the government and some reduction in AGR burden.

In another move to support the ailing firm, the Cabinet approved BG waiver on most of the dues, however, the SC’s stance on the AGR did not provide any wiggle room for the government on a reduction in AGR burden.

As of December quarter, Vi's net debt was $26.7bn, of which government’s obligation was about 99%. Following this equity dilution, Vi’s net debt would reduce to about $22.5bn. With this level of debt while Vi’s solvency improves after government support, it remains in a precarious position.

Call Analysis

Analysts have said that Vi needs tariff hikes the most as it needs to reinvest in 4G population coverage and roll out 5G services to retain its users. To be financially viable, the company needs an Arpu of about Rs 380 as opposed to about Rs 173 now. This analysts estimate may happen by 2029–30.

Elaborating its strategy in an investor presentation, Vi said it plans to invest about Rs 50,000–55,000 crores in next three years, for expansion of 4G services in 17 circles that account for 99% of its revenues and for 5G rollout, along with initiatives to push Arpu.

It also intends to focus on business services and is eyeing “strategic collaborations” to monetise digital opportunities.

The company also pointed out that its Arpu has improved for 14 consecutive quarters driven by price increase and customer upgrades, despite subscriber churn. Its Arpu stood at Rs 173 in the third quarter of 2023–24, as against Rs 153 in the third quarter of 2024–25.

Prime Minister Narendra Modi has said that the government has no business to do business. But the Vi deal smacks of a U-turn. Only time will tell if Vodafone Idea turns out to be a strong third player in the telecom ring or remains just an idea.