Hello, hello, it’s a deal

The telecom sector was opened up around 1993-94 and the mobile services began in 1995. Initially there were two players in each circle and tariffs were as high as Rs 16 per minute. Later, public sector companies were allowed entry and MTNL was the first PSU to begin services in Delhi and Mumbai. At this point the tariffs started moving southward. With the sector getting a regulator, tariffs and services started getting streamlined. The second major tariff reduction happened when in 2003, CDMA players like Reliance and Tata Teleservices entered the market. In 2006, when the state-owned companies BSNL and MTNL brought parity between local and domestic long distance calls to Re 1, private players followed suit and today the country boasts one of the lowest tariffs worldwide.

• What is Vodafone’s status in India pre- and post-Hutch Essar deal?

UK’s Vodafone is the world’s largest mobile phone company by revenue, and has over 200 million subscribers globally, with a direct presence in 27 countries and an additional 33 through partner networks. The company was so far present in India through a 10 per cent stake in Bharti. However, Hong Kong-based Hutchison Telecom International (HTIL)’s decision to sell its 67 per cent stake in Hutch Essar saw the company go for the kill, in competition with the Anil Ambani-led Reliance Communications, the Hindujas and the Ruias’ who hold 33 per cent in Hutch Essar.

• Why is the company paying a staggering $11.1 billion for a controlling stake in India’s fourth-largest cellular service provider?

Considering the potential and the growth rates of the Indian cellular market, Vodafone seems to be working to a long-term plan. India is the world’s fastest-growing mobile phone markets and has a low tele-density of just 15 per cent. Therefore, this leaves a lot of scope for growth in India where every month around 5-6 million subscribers are being added.

• What can we expect from Vodafone’s entry into the Indian market?

Vodafone specialises in offering value-added services like gaming, high-speed audio/video downloads etc. It will go all-out to offer attractive services and packages to Indian subscribers. Vodafone is believed to have spent around $27 billion on 3G licences and would be waiting for the services to roll out in India too.

• Does Vodafone’s entry mean lower call charges for Indian mobile subscribers?

It is expected that the first benefit Hutch-Essar subscribers would get post Vodafone’s entry will be lower international roaming charges. Also, with deep pockets and a varied experience in many markets, the company may tailor-make special attractive packages for Indian consumers.

• Why can’t Vodafone buy the entire 100 per cent shareholding in Hutch Essar?

According to official government policy, no foreign company can have more than 74 per cent stake in an Indian mobile telecom company. The modalities of FDI in the telecom sector are still not formulated with security agencies objecting to several clauses with regard to national security. It is expected that by April 2, the issues would be resolved with a committee of secretaries looking into the issue.

• Does anybody get to lose because of Vodafone’s successful bid for Hutch Essar?

The first and most visible loser is Anil Ambani’s Reliance Communications. The company not only lost the race for an attractive and valuable Indian telecom company but also lost an opportunity to become the country’s biggest mobile company through the acquisition, which would have been far ahead of current leader Bharti Airtel. Also, acquisition of Vodafone would have meant an easier transition for Reliance Communications, primarily a CDMA-based cellular service provider, to GSM network. The company has already said it wants to become a GSM-based service provider, for which now it will have to wait for spectrum, which is a scarce resource. Another company that could face the heat through the entry of the global telecom giant will be state-owned BSNL. While still being the second-biggest GSM-based mobile service provider of the country, the company has just a slender lead over Hutch Essar — around 18,000 more subscribers. The entry of the aggressive Vodafone would mean tougher competition for BSNL and the state-owned company literally needs to watch its back as it will be followed closely.

The writer is chief of corporate bureau, ‘The Financial Express’