The Hutchison Essar Acquisition: Vodafone's Foray into an Emerging Market

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Case Details:

Case Code : BSTR275
Case Length : 15 pages
Period : 2006-2007
Pub Date : 2008
Teaching Note : Available
Organization : Vodafone Plc.
Countries : India, UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Vodafone's Foray into India Contd...

The deal, the biggest ever in the Indian telecom industry, came after the Indian government's (GoI) decision in 2006 to raise the limit on foreign direct investment (FDI) in the telecom sector from 49% to 74%. The deal was expected to infuse much-needed FDI into the sector to meet the government's targeted numbers of 500 million customers by 2010.⁹

Industry and government circles welcomed the deal and said that it would give a big boost to the telecom sector. It would help not just by capital infusion into the sector, but also by bringing in Vodafone's experience in operating telecom networks.

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HEL was the fourth biggest player in the Indian telecom sector with a subscriber base of 29.2 million in July 2007.¹⁰

HEL had a pan-Indian presence with a presence in 13 of the total 28 circles in the country. HEL also had the second highest average revenue per user (ARPU) of Rs.340.15¹¹, second only to the market leader Bharti India Ltd. (Bharti Airtel) which had an ARPU of Rs.343.17.¹²

India was, in 2007, the fastest growing mobile market in the world unseating China which used to occupy the top slot.¹³

The Foreign Investment Promotion Board (FIPB)¹⁴ gave its nod to the acquisition on April 27, 2007, after having deferred the decision on the issue of FDI limits allowed in the telecom sector three times...

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9] "Government Targets 500 Million Telephone Connections by 2010," ww.economictimes.com, August 27, 2007.
10] "Press Release No.61/2007," www.trai.gov.in.
11] As of October 2007, US$1 was approximately equal to Rs.39.85.
12] "Bharti Overtakes Hutch in ARPU in the Q4," www.economictimes.com, March 23, 2007.
13] "India Beats US to become Nokia's Second Largest market," www.econonomictimes.com, August 24, 2007.
14] FIPB was a government body which clears the FDI inflows into the country.