India’s second-largest telecom firm, Vodafone India, has just got massive monetary help from its parent company to take on Reliance Jio, the newest entrant to the country’s $50-billion telecommunication industry.
On Sept. 22, the UK-based Vodafone Group Plc infused Rs47,700 crore ($7.2 billion) as equity into its India unit. This funding is the largest foreign direct investment (FDI) in India in rupee terms. In 2011, BP bought a stake in Reliance Industries for $7.2 billion, which in domestic currency terms was valued at around Rs32,470 crore.
The equity injection has many benefits for Vodafone India. One, it will help cut the company’s huge debt of Rs81,500 crore. Two, it will bulk up the funds available for the upcoming spectrum auctions, which will include the airwaves needed for 4G services, in Asia’s third-largest economy. Finally, it will give Vodafone some firepower to compete with Mukesh Ambani’s massive war-chest for Jio.
“This equity infusion will be used for right-sizing our spectrum portfolio, expansion of technology across our multiple technology layers and deployment of future next-generation 4G and 5G technology,” Sunil Sood, managing director and CEO of Vodafone India, said in a statement.
Ambani’s entry has disrupted India’s telecom industry, offering arguably one of the world’s cheapest mobile internet services along with free voice calls.
Since Sept. 17, Jio has been involved in an ugly spat over points of interconnect with India’s largest telecom firm, Bharti Airtel. Vodafone India, meanwhile, didn’t seem to be making much noise and was co-operating with Jio. Before Jio was officially launched, however, Vodafone did slash its 4G and 3G prices.
The Indian government will begin the next round of spectrum auctions on Oct. 1. The bidding is expected to be extremely competitive, with the government expected to rake in over Rs80,000 crore.
Vodafone began its India operations in 2007 after Vodafone Plc acquired a 100% stake in telecom firm Hutchinson Essar. It quickly rose to being the industry’s second-largest by the number of subscribers and revenue. Vodafone also wants to list its India unit to raise between $2 billion and $3 billion, in what could be the country’s biggest IPO. Details of the IPO have not been finalised yet.