With around 6 million subscriber additions a month, the Indian telecom market is being aggressively pursued by foreign players, which has pushed up the valuation of Indian telecom companies. Vodafone’s $19 billion bid for Hutchison Essar is a case in point. Telecom analysts debate the benefits of foreign companies entering the sector and the likely fallout…
How will Vodafone’s presence in India affect consumers, in the short and the long run?
Arpita Pal Agrawal: Vodafone’s presence in India is expected to bring positive changes for the consumer in the medium to long run. Besides inducing a fresh round of competition in the industry, it is expected to lead to a rollout of newer product offerings relevant and beneficial for the Indian market, based on its experience of running mobile networks in more than 25 countries across five continents.
Rajesh Chharia: No doubt, the participation of Vodafone will be very good for Indian customers, who will get very competitive prices and better quality services in the short run. But Vodafone’s relationship with Airtel is a matter of concern. If both these players were to join hands, as they have been saying for sharing infrastructure, they would hold 50 per cent share of the market and thus virtually drive the market in the long run. This has to be checked from time to time.
Rajat Sharma: Vodafone is undoubtedly the big daddy of GSM players. The portfolio of services it offers customers outside India range from services like Vodafone Live to products like PC connectivity. However, its service offering plans in India still remain unclear, especially after it declared a phased exit of the Hutch brand name. Thus, in the short run, customers may benefit from some of the cutting-edge value-added services that Vodafone is famous for offering. Also, with ownership interests in more than 25 countries and partner networks in 36 countries, Vodafone can offer international roamers seamless connectivity and lower international roaming charges. In the long term, customers will benefit from a whole range of cutting-edge connectivity products and data service offerings.
Mahesh Uppal: In the short run, one can expect little impact. It is still number three in terms of market share. In the medium term, it will be interesting to see whether Vodafone attempts to move ahead with a leadership in advanced 3G services, which it provides in many countries.
How will Vodafone’s presence in India impact competition in the industry? What will become of the regional players?
Arpita Pal Agrawal: Vodafone’s entry will motivate the existing players to re-evaluate their service offerings, positioning and future strategy in order to take on the challenge posed by the company. Vodafone has already made public its ambitions to become the number one player by 2010 and garner 20-25 per cent market share by 2012, which issignificantly higher than its existing 17 per cent share (as of end-2006). That would lead to a shake-up in the market.Vodafone has also recently announced a handset procurement agreement with ZTE, under which the Chinese firm would produce a range of Vodafonebranded low-cost handsets for sale across various markets. Therefore, Vodafone’s entry into the Indian market is likely to fuel competition not only in call charges and network coverage but also in the handset market. In anticipation of these market changes, there could be some consolidation in the near term involving regional players.
Rajesh Chharia: As stated above, the presence of Vodafone is good for Indian customers in terms of competition and quality but not so for regional players as the company will try to eat into their share by gaining an all-India presence and driving market strategy in its own favour. TRAI will have to play a major role in checking this.
Rajat Sharma: Vodafone’s presence is bound to have a positive impact on the industry in two ways. First because, as an extension of its global set-up, Vodafone will offer new services and set up the latest networks in India. Such initiatives will increase the vibrancy in the telecom ecosystem. Second, being a deeppocketed player, Vodafone can offer its services at a discounted rate initially to woo customers. However, regional players will continue to coexist along with other major players because they have created their own brand equity over time and enjoy a fair degree of loyalty.
Mahesh Uppal: Not dramatically. At a later date, it may wish to make a bid to absorb the small/regional players left in the market.
But here it will compete with other competitors with nationwide networks such as Bharti Airtel, Reliance Communications, Idea Cellular and possibly Bharat Sanchar Nigam Limited (BSNL) if the government can give it more control over its financial decisions.
What are the likely threats that can arise from Vodafone’s entry into the country, from the point of view of national security?
Arpita Pal Agrawal: It is assumed that on completion of the deal formalities, Vodafone would have complied with all the FDI and other security-related norms of the Department of Telecommunications (DoT).These norms have been formulated by the policy-makers keeping national security interests in mind. Therefore, I see no reason to worry about national security on this account.
Rajesh Chharia: As the government is presently not allowing more than 74 per cent FDI, the major and more responsible position should be held by an Indian. Also, the monitoring should be from India only. TRAI and our security vigilance team should maintain strict vigilance to ensure that no unwanted things happen.
Rajat Sharma: I do not see any threat from the point of view of national security.
Mahesh Uppal: I do not see any new threat as a consequence of Vodafone’s entry.
Do you think the Indian telecom industry will witness further consolidation with international majors coming into the country in a big way?
Arpita Pal Agrawal: In the access market, besides Vodafone, we already have SingTel, Telekom Malaysia and Maxis holding equity stakes in mobile operations. Liberalised licensing conditions in the long distance segment have also attracted players like AT&T, BT and MCI to acquire licences. The possibility of an international player getting in to consolidate the market cannot be ruled out but it would probably take place when additional spectrum is released and it becomes feasible to have a pan-Indian presence.
Rajesh Chharia: Yes, as a number of foreign players are now entering the Indian market looking at its large potential. Indian players will have to gear up to meet the latest competition in rates as well as in service quality. At present, operators are not able to meet TRAI’s QoS specifications. The entry of a big player will encourage them to improve their quality of service and reconsider tariffs.
Rajat Sharma: The Hutch-Vodafone deal was the last of the consolidations in the Indian telecom market. One of the prime reasons for this deal commanding such a high value, despite a low customer base and geographic presence, was that Hutch was truly the last player anyone could acquire. The current landscape does not permit any more consolidations. Now we will see stakes changing hands in telecom companies.
Mahesh Uppal: However, the chances of dominance of foreign players in India’s telecom space seem remote. Indian players are big and financially strong. They will not be walkovers and can strike tough deals.
?
?
What obstacles could Vodafone still face while completing this acquisition?
Arpita Pal Agrawal: As has been widely reported in the media, Vodafone needs to resolve various issues relating to its existing and proposed equity stake in licensee companies and finalisation of a local Indian partner for completion of its acquisition. The issues under resolution are: extent of permissible equity stake in the erstwhile Hutchison Essar entity, working relationship with Esaar and/or any other local Indian partner that will have to be identified, and divesting in Bharti Airtel in order to comply with DoT norms of not holding more than 10 per cent share in any other licensee in the same service area/s.
Rajesh Chharia: Penetrating the villages and creating infrastructure in rural areas will be the major obstacle for Vodafone. Presently, the incumbent, BSNL, is the only company with a major rural presence and it does not share its infrastructure with private players. Customer demands for better quality service and reasonable tariffs pose another challenge for the company.
Rajat Sharma: From an operations perspective, there seem to be no huge challenges that Vodafone can face. The only challenge that might arise will be from Essar’s right of first refusal.
Mahesh Uppal: Clearly, the bigger hurdle is the reported dispute over whether Essar has the right of first refusal and then, whether it attempts to exercise it in a way that Vodafone finds commercially or strategically unacceptable.
How is Vodafone likely to benefit from this acquisition?
Arpita Pal Agrawal: This acquisition has helped Vodafone gain a sizeable presence in India and a strong platform for future growth in the fastest growing mobile market in the world. The acquisition is in line with Vodafone’s new strategy of shifting its focus to fast growing markets where there is still room for growth. The company has exited the near-saturated Swedish, Japanese, Belgian and Swiss markets, while boosting its presence in Turkey, South Africa, Kenya, India and China.
Rajesh Chharia: Vodafone will have a major market share, especially in the Indian market, which will enable it to become a prominent player globally. It will gain key benefits if it is able to satisfy users through quality service at reasonable rates. What we expect from Vodafone is to not waste time on deploying 3G or higher services as these are costly, but to concentrate on 2G and 2.5G and try and improve services in villages. At present, all the players are talking of 3G without any improvement in the 2G and 2.5G platform.
Rajat Sharma: Vodafone has lately been aggressively looking at emerging markets. The Indian telecom juggernaut does not seem likely to stop rolling any time soon. Thus, it makes an optimal business case for Vodafone to acquire Hutch and tap the massive potential that one of the world’s biggest and fastest growing markets has to offer. Another benefit for Vodafone is that it can easily leverage the strong service and brand equity that Hutch has created for itself in India.
Mahesh Uppal: Vodafone alone has more subscribers and revenues than India’s telecom sector as a whole. Still, the entry into the world’s fastest growing market on a scale of a full national presence, almost overnight, will be a very big deal for Vodafone. It provides the company with a strong line of revenue and an opportunity to lead the market as it evolves to delivering services beyond conventional telephony. The rural telecom opportunity is huge ?? and Vodafone can successfully exploit this by bringing to bear its huge financial clout, experience and vision to delivering services through creative business models.
