Vodafone Idea’s financial troubles have wide-ranging implications for the telecommunications industry with the mobile tower sector faced with the prospect of substantial tenancy losses if the beleaguered operator is forced to shut down operations, ratings agency ICRA warned in a note on Monday.
“Vodafone Idea Limited (VIL) has been under financial stress as reflected by mounting losses and burgeoning debt levels, which is likely to impact its financial lenders as well as Government, apart from having a bearing on its employees, its subscribers and associated industries, most prominently towers,” ICRA said. It added that in case of a VIL exit, the tower industry might be staring at the prospect of about 1,80,000 tenancies falling vacant. Of these, only 40-50% are expected to be regained by the tower companies as alternative tenancies over a period of 18-24 months, the agency added.
There are about 5.5 lakh towers in the country and each tower can have multiple tenancies.
Stressing that government support was ‘critical’, ICRA added that given the current situation and sizeable obligations in the near term for VIL, material external support (primarily from Government) could act as a relief measure.
The most effective relief would be an extension of moratorium on spectrum dues beyond FY2022 as it could result in deferment of dues payable in FY2023 to the tune of ₹32,000 crore for the industry, of which ₹16,000 crore would be VIL’s share, opined Ankit Jain, Sector Head & Assistant Vice President, ICRA.
“Reduction in the levies paid by telcos, namely license fee and spectrum usage charges can also lift the EBITDA,” noted Mr. Jain. “A 1% reduction in levies leads to annual saving of ₹1,600 crore for the industry. This apart, other measures like reduction in interest rates on DoT dues, elongation of spectrum allotment tenure and introduction of floor tariffs can also aid the industry,” he said, adding that ICRA estimated that a ₹1 increase in ARPU would translate into ₹450-500 crore EBITDA accretion for the industry.
VIL owes about ₹23,400 crore to lenders and ₹1,68,190 crore to the Government toward spectrum and AGR deferred dues as on June 30, 2021.
As per ICRA, VIL occupies 35% tenancy share and 36% revenue share. In a situation of VIL shutting down operations, tower companies would have to face a loss of these tenancies, translating into revenue and EBITDA decline for the industry.
Apart from tenancy loss, tower companies would also bear the brunt of write-offs for VIL’s receivables, which have been witnessing a steady increase lately, it added.