Telecom tower companies to face up to 1.8 lakh tenancy losses if Vodafone Idea collapses : ICRA

The telecom tower industry is likely to take a serious hit by way of heavy tenancy losses, translating into sharp decline in revenue and operating income, if struggling Vodafone Idea (Vi) – weighed down by Rs 1.9 lakh-crore of debt – does not survive, said ratings agency, ICRA.

“In a scenario of Vi’s collapse, tower companies will lose around 1,80,000 tenancies that the company occupies, and of these, only 40-50% of the tenancies (are likely) to be regained by tower firms while the balance would be lost owing to redundancies and network realignment,” Sabyasachi Majumdar, group head & senior VP, ICRA, said in a media statement.

The ratings agency, in fact, expects “total tenancies for the tower industry by FY2024 to remain below FY2021 levels” if Vi does not survive and the telecom market is reduced to a duopoly.

Majumdar said in the ICRA sample of independent tower companies, Vi occupies 35% tenancy share and 36% revenue share. “In a situation of Vi shutting down operations, tower companies will have to face a loss of these tenancies, translating into revenue and Ebitda decline for the industry.

He added that tower companies would also bear the brunt of write-offs for Vi’s receivables, which have been witnessing a steady increase lately.

A potential Vi collapse would also have a bearing on the telco’s 255 million subscribers, its large employee base and vendors, especially tower companies,” ICRA added.

Cash-strapped Vi’s June quarter losses widened to Rs 7,312.9 crore from Rs 6,985.1 crore in the previous three-month period, stung by a mix of higher interest costs and heavy customer losses. Its quarterly revenue also fell 4.73% sequentially to Rs 9,152.3 crore and average revenue per user (ARPU) – a key performance metric -- was lower at Rs 104.

ICICI Securities recently said Vi’s cash flows are fast deteriorating and its liabilities are rising. “We see high risk and huge concern for Vi, and in the wake of growing uncertainties, as we believe the existing operation is unlikely to meet upcoming payouts, and the risk of default cannot be ruled out as the much anticipated tariff hike/s and capital infusion have been insufficient”.

Goldman Sachs estimates Vi could face a Rs 23,800 crore ($3.2 billion) cash shortfall until April ’22 at its current EBITDA run-rate. Vi has stiff upcoming payment commitments towards existing debt repayments, spectrum payment installment annual AGR payments.