Vodafone, soon to be flush with cash from the sale of its stake in Verizon Wireless, may be planning a bold acquisition in India. The company has been rumored as a stalker of Tata Group's mobile operator Tata Teleservices, but now it seems it may go after the far larger Tata Communications as India becomes increasingly critical to its growth plans.
Such a deal would see that giant Tata conglomerate exiting telecom to concentrate on core businesses like automotive and steel, and Vodafone bolstering its position in a critical market with a big move almost reminiscent of its swashbuckling days of M&A at the turn of the century. It has identified India as an important element of its strategy to return to strong growth and is already increasing its ownership in Vodafone India to 100%.
This was enabled by the recent change in Indian foreign ownership laws in the telecoms sector, which previously limited outsiders' stakes in operators to 74%. The government has been keen to encourage outside investment and a more stable, profitable telecoms market by easing M&A rules, and this is likely to spark a wave of consolidation this year in a fragmented segment in which many small carriers struggle to make any profit.
New Indian market dynamics
Adding Tata Teleservices to Vodafone India would make the UK-based giant India's largest cellco by subscribers, overtaking Bharti Airtel. However, Tata's joint venture partner in Teleservices, NTT Docomo of Japan, has a 26.5% stake and right of first refusal on Tata's share of the JV. That right expires at the end of March, but the Japanese operator is expected to try to extend it by one year – not to increase its own holdings but to be in a strong negotiating position with Vodafone.
If Vodafone is interested in the whole Tata Communications activity, it will face the complication that 26% of that group is owned by the Indian government. According to local paper the Economic Times, Tata group chairman Cyrus Mistry has already initiated talks with Vodafone, but would aim to buy out the government first, before selling on to the UK operator.
Buying the larger Tata unit would see Vodafone extending its European strategy, of adding wireline businesses to its formerly mobile-only platform, to India. Tata Communications has invested $800 million in a round-the-world fiber cable system and it controls a million square feet of data center and cloud infrastructure space. It offers enterprise telecoms services and its network carries 53 billion international wholesale voice minutes per year.