Struggling Indian Telecom Firm Vodafone Idea Denies Report Of Google Buying Stake

Indian telecom operator Vodafone Idea denied media reports that Google parent Alphabet (GOOG) planned to buy a 5% stake in the company.

"Currently, there is no proposal as reported by the media that is being considered at the board," Vodafone Idea said in a regulatory filing. "As part of corporate strategy, the company constantly evaluates various opportunities for enhancing the stakeholders' value.”

Vodafone Idea is a joint venture of Vodafone PLC (VOD) of the U.K. and India’s Aditya Birla Group. Axiata Group Berhad, a Malaysian telecommunications conglomerate, also owns a stake in the company.

On Thursday, the Financial Times reported that Alphabet was in talks to buy a stake in Vodafone Group’s struggling Indian unit. The report stated such discussions were in a very early stage. Nonetheless, the report caused a 35% spike in Vodafone Idea shares in Friday trading in Mumbai before the stock pulled back.

However, owing to their huge subscriber bases, Indian telecom firms may become more attractive to western investors.

Facebook (FB) has already purchased a 9.9% stake in Jio Platforms, the digital services subsidiary of the Reliance Industries conglomerate, for $5.7 billion. (Jio Platforms is the parent of mobile operator Reliance Jio.) Microsoft (MSFT) is also considering an investment in Reliance Jio

The Financial Times noted in its report that Alphabet had also tried to purchase a stake in Jio Platforms, but lagged behind Facebook in making a deal.

“Pursuing Vodafone Idea instead would potentially pit Google against Facebook and an increasingly dominant Jio but the company could also make multiple investments in India,” the Financial Times said in its report. “Google’s effort to follow Facebook in securing a foothold in India highlights the appeal of the country, where telecom operators enjoy hundreds of millions of subscribers each.”

Before the report was denied, Aamar Deo Singh, head advisory at Angel Broking of Mumbai, stated: "Amidst reports of Google picking up [a] 5% stake in Vodafone Idea, it appears that the Indian telecom and online space is set to witness a spur of activity, which is always welcome. It would offer consumers a better deal and competition in this space is definitely required as the digital space has gained massive importance post-COVID-19 and is set to witness multifold growth in coming years.”

A banker commented: “Though the Google investment is minuscule and will not move the needle, it will attract other investors in the company and be a morale booster.”

But Vodafone Idea faces a mountain of debt. In addition, the Indian Supreme Court ruled that the company must pay licensing fees of about $7 billion. Telecom companies have criticized the ruling -- asserting that they should only pay fees based on the earnings generated by their core telecom business, rather than on earnings from handset sales and other sources of income.

Vodafone Idea’s two largest shareholders, Vodafone Plc and Aditya Birla Group have frozen new investments into the company due to its huge losses and liabilities.

Reliance Jio’s entry in 2016 also disrupted the Indian telecom market – by offering very low fees, they undercut their peers, forcing many businesses to merge or collapse. Now, India has only three major private mobile phone players: Reliance Jio, Bharti Airtel, and Vodafone Idea.

“There aren’t that many options for big foreign tech companies to invest in India,” said Anshuman Mishra, a strategy advisor for Asian companies. “Jio was able to attract this money first; now everyone else wants to play catch-up.”