Will Verizon and Amazon ride to Vodafone Idea’s rescue?

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A newspaper report has suggested that Verizon Communications and Amazon could invest more than $4 billion for a stake in the struggling Indian operator.

This sent shares in Vodafone Idea up by as much as 14%.

The report in Mint came 48 hours after India’s Supreme Court ruled that India three biggest operators could pay the €11 billion they collectively owe, according to the Court, over a ten-year period.

This includes taxes, fees, penalties, charges and interest levied by the Court on a wider range of activities than the oeprators had bargained for.

Being longer established, Vodafone Idea and Bharti Airtel bear the brunt of the retrospective charges. Reliance Jio only came into being in 2016, but has completely disrupted the market.

The Supreme Court’s to allow payments over a decade comes after almost a year of wrangling that has seen Vodafone repeatedly threaten to quit the Indian market.

Supremer calculations

According to the Supreme Court’s calculations – the premise of which Vodafone Idea disagrees with – the mobile operator owes the government Department of Telecommunications Rs 50,000 crore (about €5.76 billion)

Reuters says that an assumed rate of interest of 8% a year on the phased payments, annual payments will be Rs 7,511 crore a year, and overall interest payments will cost Rs 24,710 crore over the decade.

Even with the extended period to pay it seemed likely that Vodafone Idea would struggle – its ARPU fell 5.8% to the three months ended in June, while revenue and EBITDA fell 9.3% and 6% respectively.

It has gone from being the largest operators in India after the merger that created Vodafone Idea in 2017 better to compete against Jio, to the third largest. In the current situation, it will be hard for the operator to raise its prices.

Ongoing discussions?

Apparently Vodafone Idea had been in discussions with Amazon and Verizon, but the talks were paused pending the payments ruling by the Supreme Court delivered this week.

However rumours have been rife, with suggestions that Google was looking to buy a 5% share in Vodafone Idea in May and Amazon was in talks to buy a stake in Bharti Airtel.

There has also been speculation that Brookfield Asset Management and the private equity Group KKR could be interested in investing in the Indian market, with the former as favourite.

The Indian market is the second largest after China. Reliance Jio has wiped out the debt it took on to build its hugely successful mobile business, with a whole raft of investors buying stakes in its parent company earlier this year.