The Story of the Cellular Phone Brand Orange



Themes: Brand Management
Period : 1995-2001
Organization : Hutchison Telecom, BPL
Pub Date : 2001
Countries : India
Industry : Telecommunications

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Case Code : BSTR002
Case Length : 8 Pages
Price: Rs. 200;

The Story of the Cellular Phone Brand Orange | Case Study

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The Story of the Cellular Phone Brand Orange Contd...

Sandip Das (Das), Chief Operating Officer (COO), Orange, claiming he was ignorant about France Telecom opposing the launch of the brand in other cities. He commented, "It was upto the equity partners in the New Delhi and Calcutta ventures to decide on whether to launch Orange or not."

The Making of an Empire

Hutchison had a presence in the cellular market in India since 1995. In December 1999, Hutchison picked up a 49% stake in Delhi-based cellular service provider Sterling Cellular. Since then, another 2% seemed to have been acquired by a Hutchison associate company.7 The rest was held by the Essar group, which owned almost the entire stake in Aircell Digilink, the cellular license holder for Haryana, Rajasthan and Eastern UP. In 1999, when the Essar group approached financial services company GE Capital Services for a loan of Rs 650, crore to pump into its cellular operations, it could manage to get the money only after the loan was guaranteed by its partner, Hutchison. Analysts felt that Essar had already agreed to take the backseat in the venture. In early 2000, when Business World contacted Asim Ghosh (Ghosh), Managing Director and CEO, Hutchison Max Telecom (India), he refused to comment on whether the Ruias would let Hutchison be the dominant partner in the cellphone services relationship.

But an Essar official commented, "Under the arrangement, Essar will not pull out of the telecom ventures for now, but Hutchison will call the shots. Essar will end up playing only a passive role in the arrangement." Essar officials held that the company had entered into a tacit agreement with Hutchison that Essar would exit from the telecom business in favor of the multinational when these telecom companies would go for an initial public offer (IPO) in the not-too-distant future.

Hutchison would first acquire half of Essar's stake in these companies and then Essar would go to the primary market with an 'offer for sale' to offload the rest of its stake to the general public. That would leave Hutchison as the majority owner of the cellular telephone companies. However, foreign companies weren't allowed to hold more than 49% stake in Indian telecom outfits and Hutchison already owned 49% of Sterling. Under such circumstances, Hutchison would not be in a position to acquire more shares and majority control. But, Hutchison had circumvented the 49% limits way back in 1998 itself.

While picking up Max India's 41% stake in Hutchison Max Telecom (Max retained 10%), Kotak Mahindra Capital Company and Hutchison Whampoa's 100% subsidiary CGP India floated a new company, Telecom Investments India where Kotak owned 51% and CGP 49%. Telecom Investments then took over Max's 41% stake. A similar deal could perhaps be struck with Essar. Again, analysts felt that with the government in the process of reviewing the 49% limits set on foreign ownership in telecom, Hutchison might not have to resort to such complicated ways of upping its stake in Essar's telecom ventures.

It seemed that the rationale behind Hutchison building up such a huge customer base was to help it get seamless connectivity across states and bring down prices, something that operators in individual circles would not be able to do. The fear among Indian operators was that they could end up as marginal players. Bharti Telecom and BPL were already planning to put forth a united front against Hutchison. However, Hutchison was also cash rich.

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7] Government guidelines prevented a foreign operator from owning more than 49% of a telecom company in the country.