Vi's network expansion plans may take a hit on vendor payment jinx

Vodafone Idea’s plans for a speedy expansion of 4G network and launching 5G appears to have got bogged down, with financial negotiations involving European vendors Ericsson and Nokia stuck on payment terms.

People familiar with the matter say Vi is pushing its global vendors to include a clause in the upcoming contracts that gives it the option to clear future dues towards fresh 4G/5G gear buys via a combination of cash and shares.

But the two vendors have rejected the proposal and are insisting on cash payments. “The European vendors believe accepting a cash-cum-stock payment option from Vi could create fresh uncertainties around recovery of future dues from the debt-laden telco, especially as the latter continues to lose customers and its financial challenges remain,” one of the people cited told ET.


But in a written response to ET’s queries, Vi said it has “not requested” any vendor to settle new supplies through the issuance of shares. “In all discussions, we are committed to ensuring that our collaborations are mutually beneficial for both our partners and us,” the Vi spokesperson added.

Vi had recently allotted equity shares to Nokia and Ericsson via a preferential issue to clear a portion of its past dues to these network vendors. Before that share issue, Vi was estimated to owe around Rs 3,000 crore and Rs 1,200 crore to Nokia sand Ericsson respectively.

But the two vendors are believed to have also pointed out that allowing Vi recently to issue equity shares to clear a portion of its old dues was a one-off, and cannot become the norm for future contractual payments.

The telecom JV between UK’s Vodafone and India’s Aditya Birla Group, is believed to have also reached out to Korea’s Samsung and sought the option to pay for any future 4G/5G network equipment purchases via a cash-cum-stock option. Samsung’s position on this matter could not immediately be ascertained. Vi, though, is yet to place any orders on Samsung for 4G or 5G gear.

Separately, the people familiar said Nokia and Ericsson are wary of the pitfalls of swapping existing Chinese 4G gear (supplied by Huawei) in five Vi circles with new equipment. This is since they fear ensuring minimum mobile services disruption during a massive equipment swap exercise on a live network is fraught with risks with the prospect of KPIs (key performance indicators) relating to mobile services potentially getting flouted, which could saddle Vi’s vendors with heavy penalties.

The Vi spokesperson, though, denied this, saying “no vendor has raised concerns about replacing existing equipment”.

But people familiar said Vi’s biggest vendors also want the telco to pick up the liabilities relating to swapping existing Chinese 4G gear as they believe dismantling old network equipment and replacing them with new, non-Chinese 4G/5G gear will be a costly affair involving hefty labour and logistics costs.

At press time, ET’s queries to Ericsson, Nokia and Samsung remained unanswered.

At the telco’s recent Q1FY25 earnings call, Vi CEO Akshaya Moondra told analysts that the company is actively engaged with vendors to finalise gear procurement deals and expects deliveries to start from the quarter, starting October 1.

Vi’s management had added during the Q1FY25 earnings call that the telco is in talks with vendors to address 5G rollout-related challenges in circles where it has Chinese equipment. The circles where Vi has Chinese 4G equipment are Punjab, Bihar, Odisha, Karnataka and Kerala.

Lots at stake
The stakes are huge as Vi needs to finalise its pending network gear procurement deals rapidly as it needs to plug 4G coverage gaps and roll out 5G in priority circles to arrest customer losses and compete more effectively with bigger rivals, Reliance Jio and Bharti Airtel who have launched 5G services nationally. Even in the fiscal first quarter, FY25, Vi lost 2.5 million customers.

The Vi deal is critical for both the gear makers as well, as they have seen plunging India sales in recent quarters and are exploring ways to boost collections and shore up revenue.

On the heels of its Rs 24,000-crore-fundraise via equity, Vi has been in talks with lenders to raise another Rs 25,000 crore via loans and an additional Rs 10,000 crore of non-fund-based facilities to drive its targeted Rs 50,000-55,000 crore capex over the next three years.

Vi expects the telco’s monthly subscriber churn - now at 4% — to drop from the fiscal fourth quarter by when it expects to start plugging 4G coverage gaps. But the pending contracts for accelerating 4G coverage expansion need to happen first.