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Vodafone parent rushes to support Indian offspring with humongous cash gift of $7.2 billion

Reliance Jio's onslaught and an impending spectrum sale has compelled Vodafone to act quickly so its Indian arm can remain competitive.
Written by Rajiv Rao, Contributing Writer

There's nothing like some scorching competition -- in this case a veritable existential threat -- to galvanise an incumbent in any industry into decisive action.

In India, there's probably no bigger business that has been through as much tumult as telecom today, thanks to billionaire Mukesh Ambani's audacious launch of what will possibly be India's largest startup in history, Reliance Jio.

Jio's entry has already caused epoch-defining changes almost overnight, such as free voice calls and rock-bottom data prices that have sent its competitors scrambling.

So it's no surprise that Vodafone, India's second-largest player with 200 million customers and a revenue market share of around 23 percent, received a much needed and very timely cash injection from its parent. Specifically, a staggering $7.2 billion, which is also the biggest investment in India to date.

A big chunk of that sum -- around $3.5 billion -- has been earmarked to reduce the domestic arm's substantial debt, and of course, there's the Jio headache to now battle. However, there are other things brewing that make this investment vital.

On Oct. 1, another round of spectrum auctions are to begin in India, and all the major telecom players have already slapped substantial sums down as a confirmation of their desire to participate in earnest. Vodafone, like industry leader Airtel, forked over a substantial sum last time around for 3G spectrum, but as the Hindu newspaper reports, it is not particularly strong in 4G, which it needs more spectrum for.

Then, there's the Vodafone India IPO that has long since been in the works but for some reason has been delayed. Those funds would've been quite handy for more spectrum acquisition as well as other things like network upgrades. Airtel, for instance, is apparently shelling out around $9 billion over three years to do this, and Vodafone will need to act in a similar fashion if it wants to counter the Jio threat.

Jio has caused other ripple effects. Almost overnight, it has become a leading content purveyor, thanks to now owning a pipe to disseminate all the stuff that its media empire -- from leading business magazines to TV and news stations to tech websites all acquired a few years ago -- churns out.

Jio has also started its own 'wallet' or payment service, and not surprisingly, Vodafone wants to use its recent parental gift to do the same. Tencent's Wechatpay that was started primarily to service its own customers is now the biggest competitor to Alibaba's Alipay in China, valued at a stratospheric $60 billion.

Lastly, Jio has completely upended the economics of the telecom industry with its price-cutting. It is more than prepared to take losses on its average revenue per user goals for now, as long as it gets customers both new and poached from incumbents, which means that Vodafone needs to fund its own Jio-matching price cuts from somewhere.

Telecom in India is not an easy place to be these days so it's always nice to get a large cash gift from Mommy.

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