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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!