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Essar delivers fresh blow to Vodafone’s Indian plans

Essar looking for majority stake in Hutchion Essar, say reports.

December 27, 2006

A fresh blow was dealt to Vodafone's ambitions to seize a stake in the emerging Indian cellular market when it was revealed that minority shareholder, Essar, is lining up a deal to take a majority shareholding. 

According to a report in the Financial Times, Essar – which already holds a 33% stake in fourth largest Indian cellular operator, Hutchison Essar – has been lining finance houses up to help it purchase the 67% it doesn't already hold. 

There are also hints that Vodafone's shareholders might be getting a bit anxious about the price Vodafone might have to pay to muscle in on Hutchison Essar. 

The FT reckons that Vodafone might end up paying as much as $18 billion for Hutchison Essar, whereas its local rival, Reliance – which is number two in the market – is only worth about $19 billion. 

As previously reported, Vodafone looks like it might get itself heavily involved in Portugal. Does this mean that Vodafone is planning a move into Latin America – and Brazil specifically – which is another 'emerging' cellular market? 

One hopes Vodafone doesn't get too heavily involved in the other 'big' market, Russia, given what is happening to European petrol companies who have invested there 

VODAFONE MAY BENEFIT: A brave bid for Portugal Telecom (PT) by its smaller rival, SonaeCom, may benefit Vodafone greatly. It could be left as the second of only two Portuguese mobile phone networks. 

It looks likely that the local regulator, AdC, may well let the merger go ahead. If so SonaeCom will most likely merge its own Optimus network with PT's TMN, leaving Vodafone as the only other contender. 

Another consequence is that a whole bunch of firms are now contemplating becoming MVNOs (mobile virtual network operators). The list of potential candidates includes Onitelecom, Radiomovel, and Tele2. 

Why shouldn't Vodafone join in and let a couple of them utilise its existing network? 

The curious thing is that Vodafone has also expressed interest in any assets that the combined SonaeCom and PT might be required to sell off by the AdC. 

These assets appear to be fixed telephony and cable networks rather than mobile networks. Which means Vodafone may well be contemplating acquiring the ability to offer triple or even 'four play' facilities to its Portuguese customers – ie fixed, mobile, broadband and TV. 

Setting up such a venture could well distract the company from its efforts to acquire a majority stake in India's Hutchison Essar. 

There's only one thing that still puzzles the INQ. Why does Vodafone continue to hold onto its stake in Verizon Wireless when the latter isn't a GSM/W-CDMA operator? Obviously the holding is worth a bob or two but if it wants to expand globally then continuing its alliance with a cdmaOne operator makes little sense.

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