At the analyst meet though, Vodafone Idea tried to paint a far rosier picture of future EBITDA. They added the combined ARPU of Vodafone India and Idea Cellular over the last 12 months to their forecasted opex synergy of Rs 8,400 crore, and used their ARPU levels prior to the merger to forecast an annual EBITDA of Rs 43,000 crore ($6.04 billion). An analyst privy to the meeting indicated to The Ken that this was little more than wishful thinking.

Despite not having to worry about spectrum auctions—with telcos looking to better utilise existing spectrum and prepping for 5G in the future—there is still a need to increase capital expenditure. As the industry shifts from voice to data, Vodafone Idea must spend big to increase its number of mobile broadband sites and upgrade its optic fibre networks. Airtel, for instance, revised its capex guidance for the financial year to Rs 25,000 crore from Rs 20,000 crore ($2.77 billion). In stark contrast, Vodafone Idea’s capex for the same period is a little over a quarter of Airtel’s—Rs 5,816.9 crore ($807.34 million).

To ease out some of the capital expenditure problems, Vodafone Idea’s board of directors announced plans to infuse equity capital worth Rs 25,000 crore from the company promoters. This was on the pretext that balance sheet flexibility was necessary to execute their strategy. According to a company statement, UK-headquartered Vodafone Group would be willing to contribute Rs 11,000 crore ($1.5 billion) while the Aditya Birla Group is willing to invest Rs 7,250 crore ($1 billion) towards the capital raise. The proposal is expected to close by the end of the financial year.

This, however, is unlikely to remedy Vodafone Idea’s capex shortfall. Instead, analysts say that the bulk of the equity infusion should be used for debt deleveraging. More than half of the equity infusion, say about Rs 15,000 crore ($2.1 billion), should be used to push their debt levels down.

Speaking to The Ken, a Mumbai-based analyst at a financial firm opined that even if Vodafone Idea were to do about Rs 16,000 crore EBITDA annually, they should ideally have no more than Rs 60,000 crore ($8.41 billion) of debt. After deleveraging, the remaining capital can be used for capex and interest payments.’

Tower power

Industry observers say that the capital after deleveraging will not be enough for Vodafone Idea to stay competitive. Instead, the company will have to sell off some of its assets to raise some capex firepower. Their tower assets, for example, could fetch the company some much-needed cash. Cash they need sooner rather than later.

“If they sell the tower assets, then they will be able to survive. If the tower sale does not happen, it is a slow death,” says a senior executive with a telecom gear manufacturer. In the run-up to the merger, both Idea Cellular and Vodafone India sold their standalone tower businesses to ATC Infrastructure Private Limited for a total of Rs 7,850 crore ($1.08 billion)

“Unfortunately, Vodafone Idea does not have a healthy balance sheet and they can’t put in as much money as Airtel is putting in. Forget about what Reliance Jio is spending on capex,” said an analyst in a Mumbai-based brokerage firm.

He sees a correlation between the amount of capex a telco is putting in with the mobile broadband subscriber additions, an important aspect as broadband subscriber additions translate to a higher ARPU and stronger revenue growth. And while Vodafone Idea seems limited in its ability to bring on board high-ARPU customers, it’s also in danger of losing low-end users as well.

Swing low

In the same 2017 interview where Sunil Mittal was supportive of the Vodafone-Idea merger, he also spoke of the biggest thorn in his side—Mukesh Ambani-led Jio. While talking about Jio as a competitor, he mentioned that Jio would have a tough time as its 4G-only network would only cater to smartphone users. The rest of the customer base—on 2G and 3G networks—would remain intact.

All that’s left now is the company’s stake in tower company Indus Towers. While Vodafone owns a 42% stake in the company, Idea owns a further 11.5% stake. Indus Towers is currently awaiting approvals for a merger with Bharti Infratel, the standalone tower company of Airtel. This merger gives Vodafone Idea an opportunity to make a full or partial exit, which could improve the balance sheet further. Globally, Vodafone has been mulling selling its towers business in Europe for around €12 billion ($13.67 billion) to bring down its overall debt.