THE HUTCHISON ESSAR ACQUISITION:

VODAFONE’S FORAY INTO AN

EMERGING MARKET
 VODAFONE’S FORAY INTO INDIA
• On Feb. 11,2007, Vodafone Group
Plc,acquired fourth largest mobile operator
Hutchison Essar Ltd.
• Vodafone bought 52% stake for US $11.1
billion.
• Company was valued at US $19.3 billion.
• Biggest ever deal in Indian telecom industry.
 CONTD……
• HEL had a subscriber base of 29.2 million in July 2007.
• HEL had second largest average revenue per user of Rs
340.15 as compared to Rs 343.17 of Bharati Airtel.
• Acquisition was cleared on May 4, 2007.
• India in 2007 was the fastest growing mobile market in
the world.
• Major challenge would be expanding into rural areas &
stiff competition from local players.
 BACKGROUND NOTE:
VODAFONE
•Vodafone based in UK was world’s largest mobile
communication company by revenue.
• Vodafone comes from ‘Voice data fone’.
•Operated in Europe, Middle East, Africa, Asia, Pacific &
the US.
•Subscriber base of 198.6 in 25 countries.
•Acquired Talkland, People’s phone & Astec
Communications.
•Planned to expand into emerging markets like Egypt,
Romania & India as Europe was saturated.
 BACKGROUND NOTE:
HUTCHISON ESSAR LTD.
• HEL was one of the leading mobile operators
in India.
• It was fourth largest service provider in terms
of customers.
• HEL was a joint venture between HTIL & Essar.
• HEL started its service under brand name
‘Hutch’ in India in 1994.
 MOBILE TELEPHONY IN INDIA
• GoI allowed private sector participation in the
Indian telecom sector
• Initially private players started operations in
Delhi ,Mumbai,Chennai,Kolkata
• No. of operators in each circle-2
• Licenses were issued for a period of ten years
• Started in Kolkata with Mobile Net(Modi
group-Telsra)
 Continued……
• Airtime charges were high as license fees was
quite high
• National Telecom Policy announced in 1999
• 2001-GoI auctioned licenses for mobile
services
• MTNL allowed to provide services within
stipulated area
• CDMA allowed however GSM more favoured
by the govt.
Conflict between mobile operators
• Legal conflict between fixed service operators
and mobile service operators.
• government stepped in and introduced
universal telecom license in 2004.
• This step fuelled the growth of telecom sector
and on an average there were 6 mobile
operators in each circle.
 Intense competition
• Players like RPG cellular and Fascel sold out to
bigger players.
• Merger between Tata teleservises, AT&T and
Aditya Birla Telecom.
• Customer Base grew from 10 million in 2002
to 150 million in 2007.
• Current customer base of 300 million.
 Growth Of Telecom Sector
• Often referred as poster boy for economic
reforms.
– Government practices.
– Growing competition.
• DoT planning to introduce 3G technology which
provide high speed data services, video
conferencing, online gaming etc.
 Vodafone Eyes Hutchison Essar
• In 2006 raised FDI limit in the telecom sector
from 49% to 74%.
• This opened the door for many foreign players
like Orascom & Vodafone.
• Vodafone also tried to buy 32.81% share
Singapore telecom in Bharti Airtel.
• HEL collaboration of ESSAR and HUTCHISON.
• In December 2006 Vodafone decides to buy
HTIL stake in HEL.
 Reasons
• HEL had second largest average revenue prer
user (ARPU) in India.
• Had licenses in almost all lucrative telecom
circles.
• Essar had licenses thrpugh its subsidiary essar
spacetel to operate in 7 other circles.
 Others players for the bid
• Reliance communications
• Bharti Airtel.
 The SlugFest
 Regulatory Problems faced by Vodafone.

 Resistance from Essar.

 Invitation to both Essar & Reliance for bidding process.

 Top Contenders and backing off of Orascom & Maxis.

 Deal at 11.1 bn$- Was the deal overpriced?

 Future trends shows downfall in ARPU.

 Exit of HTIL – A wise decision.

 THE AFTERMATH
• Vodafone would hold 52% & Essar would hold a 33%
stake & minority shareholders would hold remaining
15%.
• Vodafone & Essar agreed to run HEL jointly.
• Essar could also sell 33% stake in open market over a
period of 4 to 5 years.
• Vodafone signed network sharing agreement with
Bharati to save future investments in network
expansion.
• Vodafone sold back Bharati’s 5.6% stake.
• Ghosh would remain CEO but ‘Hutch’ would be
replaced by ‘Vodafone’.
 OUTLOOK
• Vodafone wanted to build up its no. in India by
expanding into rural market.
• It wanted to take 3G to the rural areas to provide
high speed data services to rural masses.
• Promised to provide cheaper mobile rates, use of
latest technology, better services & cheaper
handsets to customers.
• Vodafone invited local operators to build
infrastructure in India.
• Real challenge is from local players like Airtel &
Reliance.
THANK YOU!!