Just weeks after Mukesh Ambani's Reliance Industries unleashed an aggressive telco battle announcing a "new era" of free voice calls and cheap data with Reliance Jio, India's second largest telecom operator, Vodafone Inc. has upped the ante with a massive cash injection of ₹47,700 crore from its parent, arming it with fresh cash for buying telecom spectrum and paying down debt.
The move comes just days before India's largest telecom spectrum auction -- which many analysts have until recently doubted would succeed because of the incumbents' squeezed financial positions and indebtedness -- is about to start on October 1. They've speculated that the aggressive entry from Reliance Jio, which caught many in the industry by surprise, likely means existing telecom players would instead shift focus from the auction to preserving their cash positions to take on Jio.
Of course, it now appears that might not necessarily be the case. Vodafone India's MD and CEO Sunil Sood, has said that the fresh money – the largest FDI investment in India to date – is aimed at paying down the company's debt, buying additional spectrum, and expanding network into newer technologies.
Vodafone, which has in previous auctions missed the window on buying enough 4G spectrum, is likely to see the upcoming auction as an opportunity to top up its 4G spectrum demands, and take on the competition from Reliance Jio's 4G play.
According to analyst estimates at Sanford C. Bernstein, Vodafone India, the country's second largest telecom operator, may be the biggest spender at the auction offering as much as ₹163 billion for spectrum, Bloomberg reported. According to another estimate by brokerage PhillipCapital, Vodafone is likely to invest about ₹11,300 crore in the auction.
"Vodafone needed it [cash infusion]. We have seen others increasing capex and Vodafone doesn't have that pan-India 3G/4G network that it will need," Kunal Bajaj, an industry expert, told Economic Times.
Some analysts are also now warning that telecom operators might even behave "irrationally" in the bidding. That's the opposite of the financial prudence telecom operators were expected to show just before Vodafone's capital raise.
Analysts at Kotak Institutional Equities's have warned: "Rationality has not been the hallmark of the Indian wireless sector for the past many years, and hence, how much ever we would like to call out a rational outcome for the 2016 auctions, we would stay shy of doing so."
Vodafone has been a big spender in telecom auctions before. It previously invested about ₹25,810 crore to buy 3G services in the last spectrum auction. While rival Bharti Airtel, which invested nearly ₹29,130 crores, has been boosting its 4G capabilities by buying spectrum from small players such as Aircel. Currently, RJio and Airtel remain the dominant players in the 4G space.
Vodafone India also recently announced plans to boost its pre-paid offerings launching bundled voice and data plans aimed at a wider mobile customer base including those who currently don't have 4G phones, Sandeep Kataria, Director of Commercial, Vodafone India recently told reporters. Airtel, in the meantime, has announced a 90-day free offer on data for its pre-paid customers.
Additionally, Vodafone India's plans for an initial public offering still remain in place, which may give a further cash boost to the company when it completes the offering. While the timing of the company's public listing is yet unknown, it is expected to raise up to $3 billion, according to estimates.
"We have received a go-ahead (from the parent company) for an initial public offering (IPO) and we are preparing for it," Sood has said.
All this means the fight after Reliance's Jio entry may be rapidly moving beyond interconnect points and porting requests and into the realm of a level playing field and competing offers.Suggest a correction