Vodafone to Spend US$2 bil. a Year to Expand Indian Operations

Vodafone Essar, Vodafone's Indian arm, plans to spend US$2 billion a year on network expansion. The company already has 50% coverage and aims to take it to 90%, Vodafone Group Chief Executive Arun Sarin was quoted by Reuters as saying. The company did not specify a timeframe for this annual spending plan. Sarin added that Vodafone Essar is now adding between 1.6 million and 1.7 million customers every month, against about 800,000 earlier. Vodafone acquired a controlling 52% equity stake in Hutchison Essar for US$10.9 billion from Hutchison Telecommunications International Ltd (HTIL) earlier this year. Following the acquisition, the Indian mobile operator has been rebranded as Vodafone Essar.

Outlook and Implications

• Vodafone's Indian Ambition: When Vodafone entered India, the U.K.-based mobile giant voiced its ambition to take its Indian arm eventually to the top market position, aiming to increase its market share to 20.0-25.0% by 2012. Although Vodafone will be facing intense competition, particularly from industry leader Bharti Airtel, its massive investment plans in the country will certainly speed up its subscriber growth in one of the world's fastest-growing mobile markets. Vodafone Essar is also currently in talks over sharing telecoms infrastructure, including mobile towers, with Bharti Airtel and others. This would enable the players to piggyback on each others' infrastructure to accelerate service expansion, particularly into the rural markets. Since the acquisition, Vodafone Essar has overtaken state-owned BSNL to become the third-largest mobile player in India in terms of subscribers. At the end of August, Bharti Airtel was reported to have 46.8 million mobile subscribers with a 23% market share, while CDMA major Reliance Communications and Vodafone Essar had 34.8 million and 34.1 million mobile subscribers, respectively, representing around a 17% market share each.
• Competition Set to Boost: India added 8 million mobile users in August, taking the total to more than 200 million. There remains significant growth potential as mobile penetration is only around 18% in a country that has population of more than 1.1 billion. The country currently has 12 telecoms operators, which provide fixed-line and mobile services in the country's 23 telecoms service areas. Only Bharti Airtel, incumbent BSNL/MTNL, Reliance Communications and Vodafone Essar have licences to offer services across the country. The robust growth outlook has led to a spate of applications for new licences to offer telecoms services in India, which will further boost competition in the sector. The government has recently received over 300 applications for different service areas in the country from about 30 companies. These companies include both existing telecoms operators that are looking to expand their service areas and fresh applicants, including local industrial groups and foreign players such as AT&T and Russia's Sistema. In view of the shortage of telecoms spectrum, the government is set to impose tough eligibility criteria to keep non-serious players out of the telecoms sector (see India: 5 October 2007: Indian Government to Finalise New Licensing, Spectrum Allocation Guidelines in 10 Days, 5 October 2007: Sistema's US$1-bil. Investment Plan Highlights Attractiveness of Indian Mobile Market and 2 October 2007: AT&T Applies for Unified Access Service Licence in India).