India’s telecommunications companies have recently become highly attractive to foreign investors due to the country’s vast subscriber base.
First it was Reliance Jio, owned by India’s richest man, Mukesh Ambani, which attracted investment from Facebook and four other private equity firms totaling US$ 10 billion. This was followed by Bharti Airtel, which was sold on the Bombay Stock Exchange at a premium.
Now technology giant Google is reportedly keen to pick up a stake in Vodafone Idea, a joint venture of Vodafone PLC of UK and Aditya Birla Group, the Financial Times reported. The UK daily reported that Google wants to buy about a 5% stake in the Indian company. Aditya Birla group has declined to comment.
Google’s parent Alphabet is in talks with Reliance Jio about acquiring a stake. A stake in Vodafone Idea will pit Google against Facebook.
For Vodafone Idea an investment from Google will improve its chances of survival. The company’s debts have been mounting and this problem has been exacerbated by the Indian Supreme Court’s ruling on adjusted gross revenue computation norms. It now has to pay fees of around 530 billion rupees ($7 billion).
The ruling was the culmination of a dispute between the telecom companies and the telecommunications department over how much money the former should pay in licence and spectrum fees.
The telecom companies had contended that they should pay fees based on the earnings from their core telecom business. But the telecommunications department had argued that the earnings from handset sales and other sources of income should be part of it.
The Supreme Court upheld the the telecommunications department’s demand.
The Indian telecom sector suffered a major disruption in 2016 after Reliance Jio entered the market and resorted to predatory pricing. This forced other operators to lower their tariffs and many found that it was no longer sustainable. Many companies either had to shut down or be taken over as their margins had been so badly squeezed. Only three companies survived – Reliance Jio, Bharti Airtel, and Vodafone Idea
However, late last year the three companies decided to marginally increase their tariffs and this has helped the telecom companies shore up their revenues and improve average revenue per user.