Voda, Airtel may go the Jio way, scout for tech giants looking for tie-ups

Telcos could explore equity tie-ups with tech majors

The Rs 43,600-crore deal between Reliance Jio and Facebook will have a positive impact on telecom rivals Vodafone Idea and Bharti Airtel — in terms of valuation, raising fresh funds, and equity tie-ups with tech giants — now that the worst is behind for the sector, say industry officials.
 

Microsoft, Google, and Amazon are considering multiple partnerships with Indian players to improve their own access to the local market, say telecom firms. These giants will scout for tie-ups in digital payments, retail stores, and telecom infrastructure companies.
 

“The Reliance-Facbook deal will encourage other telcos to seek similar tie-ups, given that the tide is turning for the sector. Besides, telecom players will also benefit from the rising demand for data in the post-Corona world, and at least 10 per cent rise in tariffs during the second half of current financial year,” said a Vodafone Idea executive.

“With more and more people staying home on account of the virus outbreak, demand for seamless digital products will increase. Tech companies are bound to love this new paradigm shift and would like to tie up with local Indian companies — in telecom and retail,” said the executive cited above.
 

The valuation of the Reliance-Facbook deal suggests Facebook expects Jio’s Ebitda (earnings before interest, tax, depreciation and amortisation) to double from its current level.
 

The transaction also sets a benchmark valuation for any future listing of Jio Platforms.
 

A day after the transaction, the Bharti Airtel stock closed at Rs 499. Vodafone Idea shares rose 10 per cent to Rs 4.34 apiece on Thursday, with the firm’s total market valuation at Rs 12,442 crore.

The telecom operators finished FY20 on a sombre note, with all companies ordered by the Supreme Court to pay their past adjusted gross revenue (AGR) dues to the government, inclusive of penalty and interest.

The dues were as high as Rs 54,000 crore for Vodafone Idea, and Rs 35,600 crore for Bharti Airtel.
 

The additional financial liabilities came at a time when the liquidity profile of Vodafone Idea was already poor with negative free cash flow from operations and debt repayment obligations.

Company executives say the RIL transaction will open the gates for other operators to offer additional services to tech giants, and look for synergy via such investments.
 

Vodafone Group owned 44.39 per cent stake and ABG held 27.66 per cent stake in Vodafone Idea — as on December 31, 2019 — with both promoters not planning any additional equity infusion into the company.
 

“The company needs additional funds for buying spectrum in future and cash-rich tax giants are the right partners to invest in the operator,” one of the executives said.