Vodafone, Reliance bidding for Indian mobile operator

British mobile services operator Vodafone Group and India’s Reliance Communications are the front-runners in a bidding war for Indian mobile services operator, Hutchison Essar, according to sources close to the situation.

For Vodafone the acquisition of Hutchison Essar would give the company a beachhead in India’s growing mobile communications market. India is adding over 6 million new mobile users each month.

Vodafone quit the Indian market in 2003 when it sold its 20.76% stake in a small regional mobile services operator in the country, as it did not offer it a strong enough market position.

More recently Vodafone has expressed interest in expanding in India. Last year it acquired 10% of Indian mobile services operator Bharti Tele-Ventures Ltd. (BTVL), and even received clearance from the Indian government to buy as much as 49% of the equity of BTVL's holding company in Delhi, Bharti Enterprises.

Vodafone may find it hard to increase its stake in the services company, because the Bharti family, the majority owner in Bharti Enterprises, and Singapore Telecommunications of Singapore, which also holds a minority stake in the company, have not shown an inclination to sell their stake to Vodafone, according to informed sources.

Hutchison Essar in Mumbai is a joint venture between Hutchison Telecommunications International, a subsidiary of Hutchison Whampoa, and the Essar Group in India, in which Hutchison holds a majority stake. The company offers services under the brand Hutch, and it had more than 21 million mobile users as of Sept. 30, according to the Cellular Operators Association of India. It offers services using the GSM standard.

Reliance, of Mumbai, is a large mobile services provider using the Code Division Multiple Access standard. It has recently shown interest in getting into the GSM market as well.

If its bid for Hutchison Essar sails through, Vodafone will not be able to hold the entire equity in the company, as current Indian rules allow as much as 74% percent foreign holding in Indian mobile services companies. Vodafone will have to find an Indian partner to hold the balance 26% equity.

The boom in Indian mobile subscribers was achieved by fierce competition and falling tariffs. A number of mobile services companies have changed owners or merged as the industry moves towards consolidation, according to analysts.

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