Vodafone Idea gets warning from Indus Towers. What will be its impact?

If you are a Vodafone Idea (VI) customer, you may have to wait longer than Jio or Airtel subscribers to get 5G connectivity, or port your number to one of the rivals. Chances are, if you do not shift, even your current 4G connection could go blank. 

Indus Towers has reportedly asked VI to clear its dues or else run the risk of losing access to its towers from November.

A report in The Economic Times said that Vi's mobile services to its over 255 million subscribers could be seriously disrupted if Indus blocks tower access to the cash-strapped telco. ET said that the tower company sent a letter to VI on Monday. 

Could this potentially benefit Airtel and Jio?

It very well could. Both companies have said that they will launch their 5G services around Diwali, which is around the corner. Therefore, if VI customers face a blackout or if the company does not begin offering 5G services around the same time, lots of their customers, especially those in the premium segments, could port their numbers to rivals or choose not to continue with their current plans with VI. This could significantly impact VI’s average earning per user. 

So, what has Indus Towers actually said?

Indus Towers board has warned telecom operator Vodafone Idea of service closure over non-payment of dues, according to CNBC TV18. 

In a board meeting held on Monday, Indus Towers’ board expressed concern about the mounting dues and non-payment from Vi. Following the meeting, Indus Towers’ board has written to the telco seeking immediate repayment of past dues and sought regular payment henceforth.

One is that the entire independent board was very upset with long pending overdue from Vodafone Idea to the tune of Rs 7,000 crore, which it wants to be cleared as soon as possible.

Secondly, for the last few months or quarters, the telco has been only paying 40 to 50 percent of the overdue. From this month itself, the board has insisted that almost 80 to 90 percent of the money should be paid and from November they want 100 percent to ensure Indus Towers renders its services.

Lastly, if Vi fails to clear the dues post-November, there is a clear threat of the services getting disrupted.

What is VI’s debt provision situation like?

VI had made a doubtful debt provision of Rs 1,232.6 crore in the April to June quarter according to CNBC.

What are the other potential related concerns around VI?

As Vi’s cash crunch continues, it remains to be seen whether promoter entities will be able to infuse fresh capital into the telco. The second big concern is whether the government will convert the spectrum dues into equity. Until Vi promoters don’t infuse money, the government is reluctant to put in money and convert spectrum dues into equity.

The third issue that the firm stares at is that if the telco faces a service disruption from Indus Towers’ end post-November, what would happen to its services. It must also be noted that Vi is not in the race for 5G, so there will be a big shift in customers.