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Summary:

India has become the next big battle ground for global mobile giants. Vodafone is said to be mulling a $15 billion bid for local mobile carrier, Hutch Essar. Not quite “3” of Europe, but still a big player in the local market. Hutchinson Whampoa, the corporate […]

India has become the next big battle ground for global mobile giants. Vodafone is said to be mulling a $15 billion bid for local mobile carrier, Hutch Essar. Not quite “3” of Europe, but still a big player in the local market. Hutchinson Whampoa, the corporate parent of “3” owns 67% of Hutch Essar, the number four mobile carrier in India.

Rival phone company, Reliance is ready to thrown its hat in the ring in a bid that is backed by The Blackstone Group and possibly a consortia of banks. KKR and Carlyle Group are also in the mix somewhere. Malaysia carrier, Maxis is also said to be in the running.

Vodafone also has an investment in another local GSM provider, and current market leader, Bharti. There are some reports coming out of India that say that if threatened, Bharti might team up with Singtel to make its own move.

The fact that Vodafone is willing to bet nearly 10% of its market capitalization indicates that the British giant believes that Indian mobile market will continue to grow for near foreseeable future. In November, Telecom Regulatory Authority of India (TRAI) reported that India now has 143 million wireless subscribers.

On the other side of the equation, you can say that this is the beginning of consolidation and an early indication that market actually might be reaching its top. In my view, when foreign investors show up in India, it is rather late in the game, and they almost always tend to overpay. But that just might be a minority point-of-view.

Anyway at $15 billion, Vodafone will pay about $682 dollars for every one of 22 million Hutch Essar subscribers. (It still won’t control the entire company, because local rules cap foreign ownership at 74%.)

Just as a comparison, Cingular bought AT&T Wireless for $41 billion back in 21.98 million subscribers. Or about $1891 a subscriber. The crucial difference is the average revenue per user per month – AT&T had an ARPU of shade over $55 while Hutch Essar is bringing in about $9.4 in ARPU and is the premium service provider. Funny, Vodafone would not pay for the higher ARPU and backed out of the Cingular deal. It would have cost three times as much, but it would still have come out ahead on the revenues. However, the big bet now is that volume and growth will make the deal work. FOR SURE!

The New York Times brings up the growth in emerging markets argument, and trot out the “less than 10% of the 1.1 billion people in India have a mobile phone” argument. Yeah but look at the ARPU, and how it translates into earnings-per-share for global giants. That is the only number that should make sense for Vodafone’s shareholders.

As a footnote, back in August 2005, Cingular sold 33% stake in Indian mobile carrier, Idea Cellular for $400 million at about $210 per subscriber. Oh well!

  1. The New York Times brings3 up the growth in emerging markets argument, and trot out the “less than 10% of the 1.1 billion people in India have a mobile phone”

    I think thats good news! There’s plenty of room to grow (assuming ~90% still need mobile phones).

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  2. Hold your horses, exuberant investors!

    India is a big market, and growing at ~5-6 million users per month, and will probably do so for several months, maybe a couple of years as well..

    BUT, the key point is ARPU. Avg revenue translates directly from purchasing power. What most people in the Western world do NOT realize is that the avg consumer does NOT want to spend ~$40-50 per month on her mobile bill! They can’t. They just don’t earn enough to justify that spending. ARPU will remain less than 50% of western world, and the phones will be less expensive (barring outliers, of course).

    Indian mobile market is a volume game, and a low-cost provider game, largely speaking. The more bang for the network-buck a service provider can get, the more successful it will be.

    And no, I don’t think it will ever reach 90% penetration any time soon in India.

    So, yes, be happy about the bubbling cauldron, but hold your horses!

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  3. Om, the head of Blackstone India, Akhil Gupta, used to be a senior exec in Reliance Communications.

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  4. In India, mega billion dollar mobile buyout frenzy…

    posted at IndianBytes.c…

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  5. India is the world’s fastest growing mobile market.

    India is all set to overtake Russia as the country with the third highest mobile phone subscribers across the globe by early 2007 — behind only China and US.

    The GSM subscriber base hit the magic 100 million mark in November — making India the third highest GSM country after China and Russia. However with 36 million CDMA subscribers in November the overall mobile base in the country has hit a staggering 136 million.

    IN comparison Russia had 152 million mobile subscribers in November-a gap of only 16 million with India.

    visible.mobi

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  6. I kind of disagree that ARPU is not 40USD per month. If we check the price plan for all different wireless service provider, you would notice that each mobile user is giving around 2000Rs per month for there subscription.

    Now if we equate it to USD then it would be around 40 USD.

    But I do agree that 100% of Indian population don’t want to buy mobile phone. This is true for any country in the world.

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  7. Om,

    I just thought that you might want to know that your blog has made it to my site. It is a very interesting article; I can tell you really did your homework. Keep up the great posts. I will check back for more. If you want to see the post on your blog, check out the link below.
    http://www.feedthebull.com/story.php?title=In-India-mega-billion-dollar-mobile-buyout-frenzy

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  8. With the re-launch of Kon Banega Crorepati (Indian version of Who wants to be a millionaire?) next month, businesses are playing their high stake version.
    As a very successful investor told me recently – the “problem” with the world today is that there is too much money in the system. He expected this trend to continue over the next 3-5 years. As long as this “problem” is alive – we will see investors overy paying for most assets

    IMHO, it is going to take another 10-15 years for India to reach 500m wireless subs – ARPU will increase by no more than 10% per year.

    BTW, most operators in India over-estimate the number of subs by 7%-10%.

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  9. In the last line replace over-estimate by over report

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  10. I feel that this is an egomanical move by Atul Sarin, the CEO of Vodafone. Vodafone is creating disproptionate valuation for its vested interest. They should rather focus on thier 10% investment in Bharti, which also has been a disasterous move.

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