Vodafone could lead Indian market

Caroline Gabriel/Wireless Watch
13 Jan 2014

Indian mobile broadband will finally start to become a widespread reality this year, at least in urban areas, and the operators, tired of years of ultra-low ARPUs, are positioning themselves. Taking advantage of recent relaxation of the restrictions on foreign ownership of telcos, several players are set to chase the massive scale that is essential to profitability in this fragmented and overcrowded market. Vodafone is the boldest, not only bidding for full ownership of its own Indian joint venture, but reported to be chasing a majority stake in Tata Teleservices too.

Such a deal would make Vodafone the largest operator in India, overtaking Bharti Airtel, and would represent a bold, multibillion-dollar use of the windfall the UK-based giant is receiving from the $130 billion sale of its stake in Verizon Wireless in the US. It has pledged to expand its presence in emerging markets this year, as well as investing in wireline assets in Europe – both strategies designed to counteract the decline in traditional mobile revenues.

However, a big acquisition in India might encounter opposition from the carrier's notoriously cautious shareholders, who are keen to see a large amount of the Verizon money going into their pockets. It could also be complicated by Indian regulatory reviews, and if AT&T pursues its rumored plan of making its own bid for Vodafone. Another roadblock could come from Japan's NTT DoCoMo, which owns 26% of Tata Teleservices and has the right of first refusal for Tata's controlling stake of 59.45%.

The report of Vodafone's interest in Tata surfaced in India's Economic Times, which cited unnamed sources and said the UK firm was in early-stage talks with Tata Group, and may court other shareholders, including Docomo, too. A combined Vodafone-Tata Teleservices would have 248 million customers, overtaking Airtel's 196 million. But the company would come with losses and high levels of debt.

Vodafone recently won approval to increase its stake in Vodafone India to 100% from 64% - close to the previous maximum a foreign company could hold in an Indian operator, a rule that was altered late last year. In October, the multinational cellco said it planned to invest up to $2 billion in India, a sum which would increase should it acquire Tata's asset. It will look to acquire FDD-LTE spectrum in 700-MHz, which should be sold this year, and to improve its 3G and TD-LTE coverage and network quality. All this will help reduce reliance on revenues from the hugely competitive 2G space, where ARPUs are the lowest in the world and network quality is often poor.

Vodafone is also trying to resolve a long-running dispute with the Indian authorities over tax payments. Local reports say it has now submitted a response to a conciliation offer from the government, and has asked for all tax claims against it to be bundled together for settlement. The chief issue revolves around a capital gains tax bill of about $1.8 billion related to Vodafone's buy-out of Hutchison from the Hutchison Essar company, now Vodafone India.

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