New Delhi: British telecom giant Vodafone’s multi-billion dollar bet on India through its acquisition of Hutch-Essar may soon bear fruit with analysts predicting that the country could emerge its largest market within one year.
On the back of continuing surge in the number of mobile users, India is likely to soon surpass Germany and the US as Vodafone’s biggest market in terms of subscribers, although the company might fail short of its target of becoming number one mobile player in the country.
According to Macquarie Research, Vodafone’s subscriber base in India is expected to rise to about 38 million by the end of 2007, from Hutch-Essar’s current base of 25.3 million.
Vodafone had reached a deal last month to acquire controlling stake in Hutch-Essar, which it plans to rename as Vodafone Essar, for about 11.1 billion dollar in cash, while it has also announced an investment of $2 billion in the next couple of years.
Currently, India is the third largest market after Germany (30.6 million) and the US (26.2 million subscribers) for Vodafone, the world’s second largest mobile operator in terms of subscribers and largest in terms of revenue.
Vodafone’s India-born CEO Arun Sarin said during his recent visit here he aims to make the company India’s largest mobile operator with a market share of 25% by 2010.
However, Macquarie Research said in a report on Indian telecom sector that Vodafone’s aim to gain 25% market share by 2012 was “a bit unrealistic without help from M&A” activities.
Hutch-Essar’s currenct wirelss market share in the country is 15.9%, which could increase to over 16.5% with the integration of Essar’s BPL Mumbai circle operations, Macquarie said.
The British telecom major’s growth in India operations would depend on expanding its market share, cost reduction through measures like infrastructure sharing and expansion of distribution and network coverage among other factors.
“This will be done by enhancing coverage and reach and by packaging handsets along with the subscription plan,” the report said.
Vodafone, which recently tied up Chinese handset maker ZTE, may also bring low cost mobile phones to India starting at retail price of Rs850.
“Vodafone will be an aggressive player in the Indian mobile market, challenging the current packing order of wireless market shares by deploying its global lineage, knowledge of emerging markets and size of its revenues,” according to the global investment bank.
However, the consideration paid for acquiring majority control in Hutch-Essar and its strategic investment return targets could prevent Vodafone from going overboard in terms of growth measures like tariff reduction.
It would try to bring down the total cost of ownership of mobile phones but not likely to indulge in big bang tariff reduction given its existing number 3 position in the market.
Moreover, local call tariff cuts are not “a great driver of incremental market share gains for any operator,” Macquarie said.