SUMMARY
US telecom company Verizon and Amazon may invest $4 Bn in Vodafone Idea for 10% stake
While Vodafone is clearly in need of cash, for Amazon the idea is to fortify itself against possible threats from Microsoft, Google and even Reliance
Reliance is looking at its various investments from Facebook and Google for its new businesses including JioMart, where Amazon is a major competitor
After being snubbed by Google, which ended up backing rival Reliance Jio, Indian telecom giant Vodafone Idea is now close to raising $4 Bn from US telecom company Verizon and tech giant Amazon, according to a Mint report citing sources.
The companies are said to be in talks to invest more than $4 Bn in the Vodafone Idea in exchange for a 10% stake. The talks were reportedly paused as Vodafone-Idea awaited the Supreme Court verdict on staggered payments of the AGR dues which have threatened Vodafone-Idea’s survival over the past year.
Vodafone got a breather from the SC, on September 1, which gave telecom companies up to 10 years to pay the INR 1.4 Lakh Cr () in dues. Vodafone-Idea had told the court that it was on the verge of bankruptcy and would have to wind up its business.
Of the combined dues, Vodafone-Idea alone needs to pay around INR 50,400 Cr to the government in licence fee, spectrum usage charges, interest and penalties. It has already paid INR 7,854 Cr. The Apex Court had issued a deadline of January 23, 2020 for the company to clear the dues, but it had failed to do so.
In response to the SC decision, Aditya Birla Group chairman Kumar Mangalam Birla had said that if the government doesn’t provide relief to the company then it will be left with no option but to “shut shop”.
Why Is Amazon Chasing Vodafone?
Vodafone was said to be in talks with Google to raise funding in exchange for a 5% stake in May this year, but Google ended up choosing Reliance Jio for its biggest investment in India. The fundraising is crucial for Vodafone-Idea as it looks to pay back the government dues and invest in upgrading its network for a 4G and 5G-oriented future. It has been severely constrained for funds with losses mounting as Reliance Jio has dominated the market over the past two years. Reliance is now the leading telecom provider in India with nearly 400 Mn subscribers, while Vodafone-Idea has 113.06 Mn subscribers.. In the first quarter of 2020, ending June, Vodafone Idea had reported a loss of INR 25,460 Cr due to one-time charges including provisions to cover the AGR dues.
While Vodafone is clearly in need of cash, for Amazon the idea is to fortify itself against possible threats from Microsoft, Google and even Reliance. Amazon is competing with Microsoft and Google for the all-important cloud business in India, and while the latter two have backed Jio to get a leg in, Amazon has been searching for a similar partner, which could be Vodafone Idea.
Similarly, Amazon would want an ecosystem partner for its consumer-facing businesses such as Alexa voice services, Amazon Echo smart home devices, Prime video and more. With this deal, it could potentially get first access to Vodafone’s customer base, which may have shrunk over the years relative to Jio, but it’s still a huge addressable base by itself.
Lastly, Reliance is looking at its various investments from Facebook and Google as a strategic advantage for its new businesses including JioMart, where Amazon clearly is a major competitor. JioMart has nearly fulfilling 2.50 Lakh orders per day and looking to expand its offerings to include electronics, fashion, pharmaceuticals and healthcare items.
Meanwhile, Amazon is also looking to shore up its defense against Jio in the ecommerce space with a potential investment in Vodafone-Idea. According to media reports, Amazon’s rival Walmart may acquire a minority stake in Reliance Retail.
