Vodafone's acquisition of Hutchison Essar

23 Feb 2007

‘We congratulate Vodafone and welcome them to India. Vodafone’s participation is a further endorsement of the exciting future growth potential, and the progressive policies, prevailing in the Indian telecom sector.’

Those were the gracious words of Reliance Communications Chairman Anil Ambani, spoken the day his company lost out in the race to acquire rival cellco Hutchison Essar. The sentiment has been echoed throughout the Indian media, with many regarding Vodafone’s investment as a stamp of approval on the country’s telecoms sector: it is India’s single largest investment from overseas.

However, as TeleGeography analyst Mark Gibson points out, ‘Vodafone needs India more than India needs Vodafone.’ The mobile giant was once a high growth favourite of telecom investors. In recent years, though, Vodafone has become something of a victim of the mobile sector’s success: most of the company’s subsidiaries now operate in countries where mobile penetration exceeeds 90% (see chart above).

To improve the company’s performance, Vodafone CEO Arun Sarin has divested the company of its subsidiaries in Japan, Belgium, Switzerland and Sweden, for a combined total of more than than USD20 billion. Much of this cash has been reinvested in Turkey (USD4.5 billion) and in India (USD11.1 billion plus the assumption of net debt worth USD2.0 billion), two high growth markets with large populations, relatively low penetration rates and 3G licensing rumoured for 2008. While the steep price paid for Hutchison Essar has caused concern, Sarin has argued it was, ‘a reasonable price for an asset that is growing at 50% annually.’ The kind of growth, in other words, that has been sorely lacking in Vodafone’s portfolio.

All of the above data and much more can be found in TeleGeography’s Wireless Operator Metrics and GlobalComms database. For more information including samples and free trials, visit: