Vodafone Idea to spend over $6 billion on 4G and 5G networks

Specifically, the Indian telco has earmarked capital expenditure of between 500 billion rupees and 550 billion rupees (US$6 billion-$6.6 billion) for the next three years, money that will be spent on expanding its 4G population coverage in 17 priority telecoms circles and on the launch of 5G in key cities, as well as capacity expansion and boosting the telco's enterprise business.

Those 17 circles account for almost 98% of Vodafone Idea's revenues, explained Akshaya Moondra, CEO of Vodafone Idea, speaking on the company's fourth quarter results call. The operator will invest in its five non-priority circles, but at a lower level, the CEO explained.

"Our topmost priority is 4G coverage, because that is, to my mind, the only reason why we continue to lose subscribers," Moondra said. Vodafone Idea had 212.6 million customers at the end of March, down from 225.9 million 12 months earlier. "And so we have to expand our 4G coverage. That capex will be fairly accelerated."

Vodafone Idea finally has some financial muscle to flex. It brought in INR180 billion ($2.16 billion) from its follow-on public offering (FPO) last month, it has enacted various other financial instruments, and is also working on a sizeable debt fund raise. And naturally, some of the money will be spent on 5G, a market where Vodafone lags its two major rivals by some margin.

"It is important to note that since we will be launching 5G now, we will be well-placed to effectively utilise our capex spend. We will be able to address a part of the capacity requirement via 5G instead of 4G," Moondra said. He noted that Vodafone Idea has hit its minimum rollout obligations for 5G in four circles and is awaiting official sign-off in another two.

"We are in discussion with various technology partners for finalisation of our 5G rollout. We are also in an advanced stage of trials of Open RAN and embracing new technologies such as virtual RAN," Moondra said.

"We expect that we should be able to start rolling out 5G on a large scale from about six months from now," he said, adding that Vodafone Idea will make decisions on where to invest in 5G based on how the market evolves. "The main focus is going to be on main cities and other areas with a large concentration of 5G devices."

Vodafone Idea has little choice but to throw cash at the 5G space if it wants to compete with Reliance Jio Infocomm and Bharti Airtel, both of which launched services back in 2022 and have rolled out extensive networks. But even if it could catch up – and realistically, staying vaguely in touch is probably the best it can hope for – 5G will not necessarily mean a reversal of fortunes.

Also speaking on his company's results call in recent days, Bharti Airtel CEO Gopal Vittal admitted that making a decent return on hefty 5G investments is proving challenging. However, he insisted that it is not the technology per se that is a problem, but the tariff structure of the Indian market as a whole that is causing headaches for the telcos.

"There's limited monetisation of 5G... Today all of the capacity investments are going behind 5G," Vittal conceded. "[However,] the return that the industry really needs is predicated on tariff repair...Tariffs are at an absurdly low level relative to any other part of the world," he said.

Bharti had 72 million 5G customers as of the end of March, but these customers are not paying more than 4G customers, despite greater data usage. Most customers – 5G or otherwise – take unlimited plans. "The architecture of pricing in India is quite broken," Vittal said.

Food for thought for Vodafone Idea, which is just starting out on this 5G journey.

Its rivals are not worried about the potential for additional competition though, and not solely because Vodafone Idea will have its work cut out trying to keep pace.

Vittal said he wishes Vodafone Idea well in the wake of its equity raising.

"India will be well served if it has three good operators, three private operators," he said.