SPECTRUM AUCTION: Vodafone gets Rs 47,700 cr from UK parent to take on Reliance Jio

vodafoneIn the biggest ever foreign direct investment into India, global telecom operator Vodafone has invested Rs 47,700 crore (about $7.11 bln) into its Indian arm.

The investment has come days ahead of the biggest ever spectrum auction that India has seen.

Vodafone has submitted earnest money of around 2,750 cr to participate in the auction. If prices of the auction more or less double from their base levels, the deposit would enable the company to buy spectrum worth about 50,000 cr.

On the other hand, if prices rise only about 50% from their base level, Vodafone India would be able to buy airwaves worth about Rs 38,000 cr with its earnest money deposits.

The company is very likely to buy one slot of 2.5 GHz 4G spectrum across the country as well as 5 MHz of 1800 band spectrum in about half the country — areas where it doesn’t already have the same.

With the left over money, it is likely to buy some 700 MHz spectrum in Mumbai and Delhi.

“This equity infusion of INR 47,700 crore, which we believe is the largest ever in India, will enable Vodafone India to continue its investments in spectrum and expansion of networks across various technology layers delivering the best of experience to our hundreds of million customers,” said Sunil Sood, MD & CEO, Vodafone India.

Vodafone’s competitors like Idea Cellular and Bharti Airtel have not been as aggressive in terms of submitting earnest money deposits — a reflection of their financial situation.

Unlike Vodafone India, which has a cash-rich parent, these companies have to raise their funds largely in the form of debt. Given that their balance sheets are already stretched, they have only limited headroom to take on more debt.

As a result, both Idea and Airtel have submitted earnest money of only around 2,000 cr each.

The upcoming spectrum auction is likely to be the only big bang investment opportunity for telecom providers in the country. The auction is expected to increase the total supply of spectrum in the country by around 70%.

Vodafone, on its part, has been a big laggard in acquiring spectrum in India. The company has the worst portfolio of 4G spectrum among the top five telecom companies in India.

While Reliance Jio has the highest amount of 4G spectrum, Bharti Airtel and Reliance Communications-Aircel are close behind. Idea is at number four, with Vodafone coming in at No.5.

The company, as a result, is expected to splurge.

However, Reliance Jio — which has given earnest money of around Rs 6,500 — looks set to play spoilsport to all these players. With the highest amount of earnest money deposited, Jio will get enough bidding points to concurrently bid for spectrum across bands.

This could have a highly inflationary impact on prices — especially in bands like 2.3 GHz, 2.5 GHz and 1.8 GHz — all of which form part of the ‘must win’ category for operators that are serious about remaining in the Indian market in the long term.

During the last spectrum auction, Jio is reported to have played a role in bidding up prices even in bands where the company ultimately did not make any purchase.

Vodafone, which has its eyes set on the 2.5 GHz band, could be vulnerable to spiraling prices in circles where there is only one slot available in the band. The company will try to buy its 4G spectrum in the same band (2.5 GHz) across India to ensure smooth roaming for its subscribers and economies of scale when purchasing equipment.

Vodafone also announced that it has crossed 20 cr subscribers in the country.