Amazon may invest Rs.20,000 crore in Vodafone Idea

In the middle of 2020, when Reliance first embarked on raising funds via Jio Platforms, there were a number of mega FAANG companies that came into the picture. First, Facebook took a significant stake in Jio Platforms and was followed up by Google.

Microsoft has also shared a long association with the telecom majors in India. Global FAANG leaders also made some serious inroads into Bharti Airtel. The one big name to miss out the action was Amazon.

The reasons are not too far to seek. Both Reliance and Amazon had similar retail ambitions in India. Hence any alliance between the two was ruled out. Also, both the companies were fighting a pitched battle over control of Future group.

In this scenario, Amazon did not manage to get a real foothold in the India digital story. Now Amazon wants to rectify that by taking a stake in Vodafone Idea.

According to reports, Amazon is likely to invest Rs.20,000 crore into Vodafone Idea. The modalities are not year clear but the amount is likely to be a 50:50 mix of equity and debt. Also, the funds could be brought into Vodafone Idea in tranches.

For Amazon, it gives the much needed push into getting a telecom partner to support its cloud initiatives. After all, India is expected to be the fastest growing cloud market and likely to double by FY25.

First a background on how such a deal fits into the Vodafone Idea scheme of things. Vodafone Idea had been looking for deep pocketed investors to infuse fresh capital.

After converting most of its statutory dues to the government into equity, Vodafone Idea will now have to raise fresh capital to bankroll its 5G spectrum bidding ambitions. That is where the much larger balance sheet and deep pockets of Amazon will come in handy for Vodafone. 
 

Mega losses, write down of capital and a cash crunch are just part of the problem for Vodafone Idea. The much bigger problem is the rate at which it is losing subscribers and market share in the telecom business.

It has improved its ARPUs in the last few months by raising tariffs, but loss of market share means it is always ceding space to Reliance Jio and Bharti Airtel. That can only be stemmed if there is a big name backing Vodafone Idea.

Why would Amazon be interested in Vodafone Idea? For one, Amazon remains the only large cloud services company without a telecom partner in India. Facebook, Google and Microsoft are already tied up with Jio and Bharti Airtel. Amazon Web Services (AWS) has 49% of the global cloud market while Microsoft Azure at second place has 15.5% market share. Amazon does not want to miss the action in a fast growing cloud market like India.

India’s public cloud market is expected to more than double from $4.5 billion in FY22 to $11 billion in FY25. In short, India is on the cusp of tremendous growth. Even as Amazon gets the much needed telecom partner, it breathes fresh life into the future prospects of Vodafone Idea.

For the government, it is a good deal as it enhances the value of their investment and also ensures that telecom in India does not become a mere duopoly.