Can Vodafone Idea reap synergy benefits?

India’s largest telecom operator in terms of subscriber numbers has been struggling to raise its share of subscribers in the market for fourth-generation technology services.

Vodafone Idea has said the Rs 25,000-crore capital it has raised is a needed shot in the arm.

The country’s largest telecom operator in terms of subscriber numbers has been struggling to raise its share of subscribers in the market for fourth-generation (4G) technology services.

After the merger of Idea with Vodafone, the expected synergy benefits have yet to meet analyst estimates.

However, the management says it is confident that equipment redeployment would itself generate Rs 6,200 crore.

“About 70,000 of duplicate network equipment on the same towers will be redeployed across the 130,000 remaining sites to create a 4G layer there.

"That equipment is worth Rs 6,200 crore and will create additional capacity,” said Akshaya Moondra, its finance head.

Vodafone India and Idea Cellular had identified 200,000 sites around the time of their merger, of which 70,000 had both networks’ equipment on the same site.

The other 130,000 were using either Vodafone spectrum or Idea’s. Now, each of these sites will be able to use both.

Equipment today can service more spectrum by paying additional licensing costs, says the management.

The merged company’s estimate was Rs 8,400 crore of cost synergy to be achieved during 2020-21, two years ahead of the initial target set at the time of the original merger announcement in March 2017.

Of this, the company reported around Rs 3,000 crore worth of synergy in the December quarter.

Vodafone is currently offering 20,000 million shares at Rs 12.50 each to raise Rs 25,000 crore.

The promoter shareholders, Vodafone Group and Aditya Birla Group, have confirmed their participation of up to Rs 11,000 crore and Rs 7,250 crore, respectively, in the rights issue.

By definition, a rights issue is an invitation for existing shareholders to buy additional shares at a discounted price, in proportion to their holdings of older shares.

"When we planned for this kind of equity raise in October, the initial plan was for a lesser amount, to meet a two-year requirement.

"Then, the shareholders decided to raise more (for the long term)," said Moondra.

However, analysts are sceptical that this round of funds will be enough.

Even with a 90 per cent success rate, they see a need for more money in the next eight to 12 months.

Moondra added they were looking, overall, at Rs 40,000 crore in capacity creation, of which only Rs 7,000 crore had been spent in the first nine months.

The capital push comes from a strong need to match rivals on the 4G subscriber base.

By the latest official figures, for February, Vodafone has 20 per cent of the broadband market, compared to nearly 20.4 per cent with Airtel and 54 per cent with Jio.

Photograph: Krishnendu Halder/Reuters