The snapping up of a controlling stake in India’s fourth-largest mobile phone operator, Hutchison Essar (Hutch), is being seen as transformational for Vodafone — and a major coup for its chief executive, Arun Sarin, less than a year after a shareholder rebellion over uncertainty aaout the group’s direction.
There was confusion, however, about whether Essar, the group run by India’s Ruia brothers, which owns the remaining 33% of Hutch, will sell or remain as Vodafone’s partner in the venture.
The Ruias maintained during the auction of Hutch’s stake that it had the right of first refusal to buy out its partner. Hutch and Vodafone say this applies only if an Indian firm makes an offer.
Vodafone has offered to buy out the Ruias and has lined up partners to take on a minority role in Hutch as, under Indian law, a foreign business can own no more than 74% of a telecoms company.
Vodafone spent £5,6billion buying the 67% stake in the business. But Indian executives at the mobile industry’s largest annual conference, the 3GSM world congress in Barcelona, reckon the company will have a tough job making a serious return on its investment.
There is a lot of potential for growth in India as less than half the country has mobile coverage, but in rural areas potential new customers will not be able to pay the sort of prices urban middle classes can afford.
Vodafone already had a position in the Indian market, with a 10% stake in the market leader, Bharti Airtel, which it bought a year ago. On February 12, Vodafone announced that it would sell just over half of that holding back to Bharti. Bharti has first refusal on the remaining 4,4% stake, which Vodafone is retaining.
Bharti Group’s chairman, Sunil Mittal, said Vodafone’s purchase made sense strategically as India is one of the few fast-growing markets that foreign companies can enter easily, albeit at a price. — Â