Vodafone’s entry

It was expected. I had mentioned it long time back that Airtel is looking to divest it’s stake in Telecom and look for greener pastures elsehwere. Notably in Agriculture. Yet, what does the entry of Vodafone means here?

For starters, they have only invested in 10% stake in Airtel. Meaning thereby that it would give Airtel some funds for expansion. The exact details for the arriving at the valuation aren’t known but then they wouldnt be known either.

Does it mean that Indian Telecom is “rocking”? No. Because, Vodafone’s strategy seems to be wait and watch. Interestingly, they haven’t applied as independent operator. That would mean buying a licence and setting up a shop here and slowly grow up scales. They just chose to invest- I believe with full knowledge that they have the option to sell of stake in the future whenever the valuation improves.

The news came in with announcement of Q2 results of Airtel. This was much less than the market expecatations and as of date, their share prices went down instead of improving.

Hence Vodafone’s investment needs to be taken with a pinch of salt.

How does this help Airtel in the long run? I believe that extra infusion of funds would help in one way. Further, they might be able to have extra expertise in value added services like content. As I mentioned, the details are not yet known.

How does it benefit Indian Telecom? Well, this comes at the heels of the expected 74% FDI limit to be announced shortly. There had been a proposal but it wasn’t notified. We might see the entry of another player- the smaller players in GSM like Aircel or Spice might decide to sell out. Or the extra funds may give Airtel the financial muscle to buy out the smaller players. They have conciosuly tried to avoid raising money from the banks or financial lenders. Reliance may well be able to hive off it’s GSM network. Though I would be thankful to anyone for providing me the details from North East and so called category C circles.

Is the euphoria warranted? Of course not. Yet, telecom experts of all hues are going to crow about anytime soon.