Vodafone confirms JV plan for India network

Vodafone confirms JV plan for India network

To speed up its expansion across India, the world’s largest wireless service company, Vodafone Group Plc., is planning on teaming up with other operators to create a joint venture (JV) to operate its networks.

The effort should reduce the high costs to Vodafone of building the backbone of a cellular phone network, including towers to transmit signals, and help reach more people, particularly in rural areas.

The move expands plans Vodafone laid out in February to share its network with India’s largest cellular company, Bharti Airtel Ltd. Now, Vodafone plans to operate those networks via a JV and could include other carriers.

“As we’ve gotten into it, we’re finding that we’ve been able to expand the scope and scale of the venture that we were thinking about," said the company’s chief executive Arun Sarin in an interview. He declined to say which other companies could join and said it could be a couple of months before deals are finalized.

The move is the latest by the UK-based wireless operator to expand its operations after it made the largest foreign investment in India with its $10.9 billion (Rs44,472 crore in May) acquisition of a majority stake in cellphone firm Hutchison Essar Ltd earlier this year. Analysts and investors are looking for news on how the Indian business is faring on 10 December, when management is scheduled to present an update.

Vodafone, the largest company in the industry by sales, is pushing into high growth markets such as India as its core European markets are increasingly saturated.

Its Indian business, previously called Hutchison Essar and now called Vodafone Essar, saw revenue grow 53% for the six months ended 30 September over the year-ago period. By contrast, Vodafone’s European revenue grew just 2% overall and sales in the key markets of Germany and Italy declined.

Cellphone companies use patchworks of towers to transmit their signals. The towers typically are tall structures on which an antenna is located. In recent years, as telecom companies look for ways to cut costs in an increasingly competitive environment, some carriers are deciding that owning the towers isn’t a core part of their business. By creating a JV, operators could pool existing towers and share the cost of building new ones.

Vodafone already has agreements to share base stations with other companies, such as Telecom Italia SpA in Italy and with France Télécom SA’s wireless unit Orange in the UK. Some operators have gone further by combining their towers business into a separate business in a JV.

Vodafone expects to spend about $2 billion this year in building network coverage in India. The country is only about 50% built out in terms of covered population, and teaming up with partners in a JV will allow for “quite significant" savings in building out the rest, Sarin said.

The model could be applied in Vodafone’s other markets. In South Africa, for example, Vodafone owns a 50% stake in mobile operator Vodacom Group Ltd; Telkom SA owns the rest.

On Wednesday, Telkom said talks to sell its stake in Vodacom to Vodafone had ended. Vodafone had been looking to increase its 50% stake in the company. Bobby Leach, a Vodafone spokesman, said the existing partnership would continue.

While the exact shape of network sharing deals will likely vary by market, Sarin said, “we’ll all learn from pushing the envelope here and we’re certainly pushing the envelope in India".

In another move to help keep down costs in India—where customers spend on an average less than $8 a month, compared with $30 or $40 that Americans and Western Europeans spend per month—Vodafone is also outsourcing to other companies parts of network building, information technology and customer care, said Paul Donovan, head of Vodafone’s emerging markets business.

As it builds out its coverage area in India, Vodafone is making a major branding and marketing push to establish the company’s brand in a country where before this year it was relatively unknown to consumers.

The company changed signs at roughly 400,000 retail outlets across the country in just a few weeks and bought all the commercials for a 24-hour period on one of India’s most-watched television networks, said Harit Nagpal, Vodafone’s chief marketing officer in India. Employees at local headquarters in Mumbai now use red pencils and paper clips, in keeping with the colour of Vodafone’s logo.

Since Vodafone took over the Indian business in May, it has about doubled its capital expenditure. Vodafone Essar added 4.9 million net customers in the quarter ended 30 September, compared with the business’ 2.8 million net customer additions in the year-earlier quarter, before the UK-based company acquired it.