Print

Comment

Email

Digg

Del.icio.us

Reddit

he $11.1 bn transaction, the largest deal in the Indian telecom market, between the promoters of Hutchison International of Hong Kong and Vodafone of the UK to acquire India's fourth largest mobile operator, Hutchison Essar, was welcomed by Bharti Airtel and Reliance, the would be arch rivals of Arun Sarin-run Vodafone, the world's largest telecom company with over 200 mn subscribers.

The three-month long exit drama involving Li Ka-shing-promoted Hutchison Telecommunications International, the 52% partner of Hutchison Essar, has already generated enough heat in the 200 mn subscribers market with several players gearing up with their strategies to escalate market presence. At one hand, Bharti Airtel wants to retain its leadership position, while Anil Ambani of Reliance, who has big GSM plans, can not be a loser in this game. The ambitious plans of the state-run BSNL, the market leader with its rural focus, and the Tatas, one of the leading business houses with strong financial muscle and aspiration for global telecom presence, can not be ignored.

This is the third time (in 2007) that Vodafone is testing the Indian market. The first partner was RPG Cellular (1999) and the second, Bharti (2005). Vodafone had exited India, when the teledensity was hovering at around one percent, in 2003, by selling out its stake in a regional mobile services operator RPG Cellular. The UK operator made its second entry in the country by picking 10% stake in Bharti Tele-Ventures Limited (now renamed as Bharti Airtel) with an investment of $1.5 bn. The sell off from RPG Cellular was part of its overall strategy to exit from all Asian markets.

With the entry of a serious player like Vodafone and since the present mobile penetration in India, at around 17 per cent, is likely to exceed 40% (at 500 mn subscribers) by 2012, the sector is probably at the starting block of a serious battle for mobile market share.

The $54.8 bn Vodafone is keen to become the market leader by 2010 in India and threaten the numero uno position of Bharti, its long-term partner. With Bharti Airtel and Tata Teleservices planning to scale up the company in a sustainable manner to cater to 100 mn customers by 2010-11 and Tata Teleservices, BSNL, Reliance and Bharti have aggressive investment plans for network expansion, can Vodafone gallop to the number one position from the present 4th?

To occupy top slot, the global telecom giant has to jack up capex, ensure better synergies-operational and with partners, focus on rural push, which was neglected by the earlier promoters of Hutchison Essar, and infrastructure sharing will hold the key to its success in India.

SYNERGY
Vodafone's association with the 33% equity partner, Essar Group, which is seeking a share in management control of Hutchison Essar, is not a healthy one, though both decided to work together. Partnerships-as equity partners and, operationally, to attain common goals-will assist telecom companies in the Indian market to stay ahead of competition. Indian telecom business houses-the Essar group, the Tata group, Reliance, the Birla group, Hutch, BPL, RPG, etc are known for dragging their partners/ex-partners/rivals to court. Vodafone is not too behind when the court issues arise since the UK telecom giant had already faced the Chennai High Court and Company Law Board following its exit from RPG Cellular. May be Bharti Airtel is an exemption with it keeping a strong association with Singapore Telecom.

According to Essar, the Ruias are looking at 'partnership of equals' with Vodafone and 'joint management' of Hutchison Essar. In fact, the association between the Ruias and Li Ka-shing has already taken Hutchison Essar into deep troubles. Depending on the Indian-born Arun Sarin's diplomatic skills, the Indian investment can take off to new highs. Partnerships of other Indian telecom ventures are on a strong foot. Strategic/equity investors like Temasek and C Sivashankaran of the Sterling group (in Tata Teleservices), SingTel (in Bharti Airtel) may not create boardroom tussles, considering the present scenario.

The list of Vodafone's partners is quite long. Hutchison Essar's CEO, Asim Ghosh, and Analjit Singh, HTIL's existing partners, who between them hold a 15% interest in Hutchison Essar, have agreed to retain their holdings (only voting rights, economic rights are with Vodafone) and become partners with Vodafone. Vodafone's interest will be 52% following completion and Vodafone will exercise full operational control over the business.

The other important question raised by analysts is: can Vodafone sustain in the Indian market without becoming an integrated telecom player. India's leading companies-Bharti, TTSL, Reliance are full telecoms service providers. Since Hutch is planning to rely on Bharti for NLD and ILD traffic, the future may not be so bright. However, the new Vodafone-owned Hutchison is presently talking about total communication solutions innovative products and services to the Indian market. It can either go for its own licence or ride on Essar's licence.