India hails Vodafone entry in telecom market

"We are pleased to welcome Vodafone and congratulate them on their Hutch acquisition. The Indian telecom sector is one of the most sought after in the world and the bid is a strong endorsement of the government policy to promote the telecom sector," said Bharti Airtel’s Sunil Mittal. Airtel is the largest private mobile services operator in India having about 32 million mobile phone subscribers.

"Bharti and Vodafone have enjoyed a very fruitful partnership and both companies will work with the industry towards connecting millions of people across India," he added.

Vodafone, which has a 10 percent stake in Bharti Airtel, has sold back 5.6 percent to the promoter Sunil Mittal's group for $ 1.6 billion.

"Vodafone has sold its 5.6 percent direct stake in Bharti Airtel to the group," Mittal said, elaborating that the deal was on a deferred payment basis.

Vodafone will, however, continue to hold an indirect 4.4 percent stake in the company, as a financial investor and will neither have any representation on Bharti Airtel's board nor any management rights.

As per the telecom norms, an operator cannot hold more than 10 percent stake in two service providers. This is why Vodafone is shedding its stake in Bharti.

Bharti Airtel and Vodafone have also entered into a comprehensive memorandum of understanding (MoU) on a range of significant areas, including infrastructure sharing, roaming and long distance services. Bharti Airtel will be the preferred vendor of Vodafone for NLD, ILD and leased line services. Vodafone will also give 50 percent of its in-bound international roaming traffic to Bharti Airtel for three years.

The two companies will also work on a comprehensive range of significant infrastructure sharing options, including around 70,000 towers in India, enabling rapid network expansion to connect sub urban and rural areas across the country and reducing costs.

However, Bharti is in no mood to relinquish its dominant position in the telecom market.

"If Vodafone ups aggression and goes for further acquisitions (in India), we will have to up our ante... we would like to defend our legacy... we are market leaders," Mittal warned.

Reliance Communications Ltd.'s chairman Anil Ambani has also welcomed Vodafone to India, after the UK giant emerged the top bidder for Hutch-Essar.

"We congratulate Vodafone and welcome them to India. Vodafone's participation is a further endorsement of the exciting future growth potential, and the progressive policies, prevailing in the Indian telecom sector," Ambani said.

Interestingly, Ambani was one of the rival bidders in the Hutch-Essar buyout. "Reliance's bid was made in line with our publicly declared and consistent philosophy of sustainable value creation, and financial conservatism, in the face of truly challenging acquisition valuations," he said.

A consortium led by NRI business group Hindujas and Essar, were the other bidders in the fray for Hutch-Essar.

"The entry of Vodafone in India will increase competition, bring global practices and better services to the domestic market, which will benefit the end consumers," industry body Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement.

There are large business opportunities in India and more cross border corporate deals may take place in the future as well, it said.

Terming the Vodafone development as highly beneficial for the country and consumers, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) Telecom Committee chairman C.S. Rao said, "Vodafone is the largest global mobile service provider and has already mastered innovative services for subscribers be it in voice, data or video streaming."

India would be benefited by the experienced player's entry in the domestic market, since the telecom sector is set for high growth, he said.

The next growth target of 250 million subscriber-base is expected to come from tier III and tier IV towns of hinterland India, Rao added.

ASSOCHAM said innovation, coupled with right business model and affordable services, would be required for the semi-urban and rural Indian market, which is different from the European market.

Congratulating Vodafone on its winning bid, Union Commerce and Industry Minister Kamal Nath said that the entry of Vodafone as a major player in the telecom sector reflect the growing global confidence in India.

"It reflects the growing global confidence in India, its strong fundamentals and the resilience of the Indian economy," Nath said in a statement.

"The developments underline the tremendous value creation by Indian ventures which are now being recognized by the world," he added.