The entry of Vodafone, the world’s second largest telecom services company (it is next only to China Telecom) is significant in more ways than one. Apart from the fact that its chief executive Arun Sarin is India-born, details of the manner in which the giant is buying 67 per cent in Hutchison Essar Ltd are noteworthy. At $ 11.7 billion for the majority stake, Hutch is not cheap, but Sarin has his eyes firmly on the future. India is a country with one billion people, and he sees penetration levels of 500 million in a few years from now, driven mainly by volumes as remote villagers clamber on to use high-tech mobile phones to make a dramatic difference to their lives. India is the world’s fastest growing telecom market and Hutch, with about 24.4 million customers in a market that is expected to touch about 200 million this year, is a nice foothold for Vodafone, which is stagnating in its Western strongholds.
It is also significant that Vodafone will be sharing network cellular infrastructure with Bharti Airtel, its rival in which Vodafone has been a minority stakeholder. This shows that the business is now mainly in services, and in a sign of industrial maturing, network equipment is seen as a shared cost rather than an aspect in which rivalry should show up.
Apart from this, there are regulatory issues tied up to the Vodafone deal. The Ruias who run Essar hold 22 per cent of their stakes in the joint venture through their foreign entities and 11 per cent through domestic firms. If Mr Sarin cannot get the Ruias to sell, but wants to buy out Indians who own 15 per cent of the 67 per cent Vodafone has bought, there is the technical likelihood of Vodafone violating foreign direct investment (FDI) regulations that limit FDI in Indian telecom companies to 74 per cent. On current indications, the Ruias and Mr Sarin seem to have some arrangement, presumably aided by the Valentine’s Day roses that the IITian sent to the Ruia brothers. It is better for the Indian consumer if Vodafone’s entry improves the quality of services at lower prices. Hopefully, Mr Sarin, with his roots in Bangalore and Kharagpur, will get time off from sparring with partners to do just that.