This sentiment was evident when the two companies finally announced their merger plans in March that same year. After all, they had a lot to offer each other. Vodafone India had been looking to list on the Indian stock exchanges since around June 2016. Idea, as an already listed company, would help them achieve this. In addition, while Idea had made inroads into rural areas, Vodafone had a larger presence in metros. The merger was supposed to help the companies consolidate their capital and operational expenditure, reduce their debt, and raise their average revenue per user (ARPU) on data plans.

So, when the merger finally went through in August 2018—with the two companies forming a merged entity called Vodafone Idea Ltd—it should have been good news. A bulwark against the unceasing creep of rival telco Reliance Jio.

The maiden quarterly results, however, were more nightmare than fairytale. To begin with, the company posted a net loss of Rs 4,974 crore ($690.35 million) during the September quarter. Vodafone Idea lost 13 million subscribers during the quarter—more than double the subscribers lost by Airtel in the same period.

The recharge plans

Hopes of an increase in ARPU also proved unfounded. ARPU in this quarter declined to Rs 88 ($1.23). Vodafone Idea has now launched new minimum recharge plans aimed at stemming the ARPU depletion. While its rivals also saw a drop in ARPU, Airtel’s ARPU for the same quarter stood at a comparatively better Rs 100 ($1.4), while Jio’s was an even higher Rs 131.7 ($1.85).

Unsurprisingly, revenue took a body blow. Total revenue fell 7.1% quarter-on-quarter to Rs 12,023.8 crore ($1.66 billion). Earnings before interest, taxes, depreciation and amortisation (EBITDA) was Rs 978.8 crore ($135.85 million), a steep drop of 28.7% from the preceding quarter. EBITDA margins reduced from 10.6% to 8.1% since the preceding quarter. To put this in perspective, when the merger was announced in March 2017, Idea Cellular alone had a much healthier EBITDA margin of 26.1%.

Yes, Vodafone Idea does have a larger customer base than its rivals—more than 400 million in total—but this base is fast eroding. Analysts say that as the networks of the erstwhile Vodafone India and Idea Cellular integrate, Vodafone Idea’s network quality is in shambles, leading customers to port their numbers to other operators.

Meanwhile, it needs to set up more broadband sites and expand its optic fibre infrastructure to create more capacity for the data explosion currently taking place in the country. All of this requires more capital expenditure if Vodafone Idea is to remain competitive, but soaring debt has left the company hamstrung.

The company even issued a statement following the dismal results that was meant to show resolve. Its promoters would infuse Rs 25,000 crore ($3.47 billion) of capital to shore up the balance sheet of the newly formed entity and help it stay competitive. And the tone of Vodafone Idea’s first analyst meeting was meant to underscore this. The message the company sought to put out at the meeting was that, far from being on the brink of disaster, they were in an opportune situation where they could extract the best of the two companies.

During the merger talks, Idea Cellular’s management had told analysts that, on both the capex and opex side, the merged entity would have a savings run-rate of around $2 billion once the networks of both companies integrated in four years. The company was expected to save Rs 8,400 crore ($1.18 billion) on the opex side. But during the analyst meet, the management claimed that Vodafone Idea could achieve the opex savings two years earlier than previously planned.

But all this posturing is equal parts bravado and optimism. This is no ideal situation. Vodafone Idea is faced with a glut of problems. It needs to figure out how to reduce its debt, ringfence subscribers, and protect its revenue market share.

Debt on arrival

High on the list of Vodafone Idea’s woes is debt. A growing mountain of it. Yes, debt has, over time, become a badge that Indian telcos now wear as a sign of maturity. But even so, Vodafone Idea’s situation is worrying—its net debt stands at Rs 112,500 crore ($15.61 billion), a 3.02% increase from the previous quarter.

The size of its debt is particularly concerning to analysts as it stands over 10 times higher than the company’s EBITDA. A July 2018 report from brokerage firm Credit Suisse pointed out that debt interest payments alone would eat into around half the EBITDA generated by the merged company. This leaves little room for capital expenditure. The report projected that Vodafone Idea would not cross an annual EBITDA of around Rs 16,000 crore ($2.24 billion) for the next three years.