t h e b & e s e c t o r telecom

vodafone takes over hutch

telecom
Bordering on sycophancy, India Inc. celebrates,
f e at u r e the government is proud, bureaucrats are
rushing over each other to take credit;
Vodafone, scoring over Mittals, Birlas &
Ambanis, takes over Hutch... Are we alright?

t h e b & e s e c t o r
vodafone takes over hutch... ouch!!!
S
o what happens when a corpora-
tion, which has accumulated hun-
dreds of billions of dollars of losses
higher than any other company in global
corporate history, which has an M&A
track record preposterously worse than
that of any other corporation across any
continent, and which has brazenly at-
tempted corporate crimes globally and
has got fined by governments after being
shamefully convicted, decides to takeover
one of Indias largest telecom corpora-
tions, while already having invested in
Indias number one telecom company?
Well, the answers not even ironic. Indi-
ans being what were well known for, we
ludicrously celebrate!
Right from his decision to enter the
dogfight to acquire AT&T Wireless in
2004 (which he finally failed to do) to his
asset write-down strategy in many of his
regional subsidiaries acquired through
various acquisitions and mergers in Ger-
many, Japan et al (which also explained
Vodafones biggest ever loss of $41.2 billion
during 2006!), Arun Sarin has ensured
that his company and its shareholders
have already seen the worst days ever
seen in the history of global corporations,
SIMple weapons
for the war!
Market share of
telecom operators
(in %)
Source:
Niche Broking
26 23 february-8 march 2007
Arun Sarin might have heaved a sigh of relief after clinching the Hutchison
crown, and India Inc., along with the bureaucracy, toasting our liberalisa-
tion policy no ends. And why not, one of the worlds largest telecom corpo-
rations has chosen India to further their mammoth investment plans,
havent they? Uhh ohh, the scenarios not quite good, in fact, its bleak!
and the worst is yet to come (one prays,
not in the form of Hutch takeover)!
Even this time, while he announced his
decision to acquire 67% in Hutchison Es-
sar on February 11, 2007, for $11.1 billion
(his biggest deal for Vodafone), he must
have prayed to the merger gods to be kind
to him this time round, as he had been
lashed enough by his critics due to both
his and his predecessors deeds (the main
culprit being Christopher Gent, ex-CEO of
Vodafone and responsible for the insane
shelling-out of a monumental $183 billion
for acquiring Germanys Mannesman AG
in 1999 the biggest failed deal in M&A
history!). Well, what do you say
about a company that, apart
from the preposterous acquisi-
tion above, has made such a
sweet breast of accumulating reg-
ular pathetic losses aggregating
more than $131 billion since 2002;
and weve not even included the current
years forecasts. So what else can go wrong
with Vodafone and India?
telecom
increase in subscribers from the current ly) deep pockets; and reserves that can
Arun Sarin (right), CEO, Vodafone,
with Asim Ghosh, MD, Hutch Essar
give us time, we can do worse
A buoyant Arun Sarin commented right
after his Hutch conquest, We are de-
lighted to be deepening our involvement
in the Indian mobile market with (a) full
range of products services and brand.
Hutch Essar is an impressive, well run
company that would fit well into Voda-
fone Group. With Vodafone already hav-
ing entered into a prospective network
sharing contract with Airtel, and with
Vodafone part owner of Airtel, Sunil
Bharti Mittal, not surprisingly, spoke up
for Arun, We are pleased to welcome
Vodafone and congratulate them on their
Hutch acquisition.
Evidently, the Indian telecom market
is growing massively, easing out anti-Vo-
dafone rivalries. Opines Sridhar Pai, lead-
ing telecom analyst, The Indian mobile
operators have not seen anything low or
an ebb cycle. The market has only moved
one way so far North! Vodafone has
seen many industry cycles come and go
across the world, so there could be some
business&economy
6 .31
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wisdom for everyone in terms of early have a widespread net-
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market signals, operational manoeuvres work covering the entire
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to handle slow-downs. According to Jig- geography of India.
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No
nish Dabhalia, Niche Broking, The Given the losses that
buoyancy in the mobile telephone seg- they can bear, its quite
ment portends well for the telecom in- clear that Vodafone has
dustry, which will observe a three-fold extremely (and abysmal-
150 million to 398 million in the coming bleed any Indian telecom company desert
five years. With such a positive outlook, dry, BSNL, Idea, Reliance et al. And the
all the players have lined up big expan- most worrisome part of it all is that, Vo-
sion plans for the coming few years. dafone internationally doesnt have a
Bharti has lined up a capex of over $2 sparkling white background, with respect
billion, RCL is not far behind with invest- to either ethics or lawful behaviour, espe-
ment plans of $1.5 billion and Idea Cel- cially when it comes to government deal-
lular has already filed for an IPO and ings, which India has loads of.
would be raising close to Rs.21.25 billion
to fund its expansion plans. guilty until proven innocent
Then pray, why should the other play- For newbies, we could start blabbering
ers be morbidly worried? The fact is that about Vodafones scurrilous history of
globally, when relegated to a follower po- rocking scandals in truly multinational
sition, Vodafone has had a background style, of which the major one included
of decimating market profitability condi- Greek regulators in 2006 fining it a whop-
tions by ensuring that cut-throat price ping $128 million for deliberately failing
wars and warfare promotional offers to stop wire-tapping of top government
completely devastate competition. One officials, including, you wont believe it,
must consider the fact that Hutch is only the Prime Minister himself (PM Costas
the fourth largest telecom player in the Karamanalis). Or we could mention how
country with presence in only 18 circles. the Vodafone manager who blew the lid
Whereas players off this scandal, was
like Airtel, BSNL mysteriously found
and Reliance Hutch Essar is an hanging some time
impressive, well run after this came out.
company that would fit well Or we could talk
about how Hungarys
into Vodafone Group, Competition Office
Arun Sarin, CEO, Vodafone convicted Vodafone
and slapped it with
the sitting duck called trai
T he intentions of Telecom Regulatory Authority of India
(TRAI) are not only suspect, but seem almost to be promot-
ing anti-consumer benefits. The top issue being Mobile Number
Portability (MNP), that is, an allowance for a consumer to
switch service providers without having to switch num-
bers, the biggest consumer switching cost. Years have
passed with many pleas of analysts falling on deaf TRAI
ears, who suspiciously continue to play along to the service
providers tunes by not allowing MNP. The recent TRAI covenant
to bring down roaming charges by 56% is most pathetic; what
with the fact that they still continue with the concept of mini-
mum call price barrier, thus disallowing lower call rates.
0
telecom
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Oct
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Up up and
higher!
Source: TRAI
Mobile subscriber
growth (in millions)
huge fines for deliberately misleading
customers! Or how the Italian Anti-trust
Authority found Vodafone had clearly
abused its telecom dominance to prevent
competition (final judgement expected in
February 2007). Or how in February
2007, Kenyas investment investigation
watchdog put Vodafone under investiga-
tion for alleged corruption. Vodafone
could chew up Indian competitors for
dessert, what to say about a full meal!
v came, v saw, v went... away!
There are other issues. After playing
around with markets and industry struc-
tures with their ruthless strategy experi-
ments, Vodafone, like a true alien, exits!
And this is not just their Chennai circle
sell-off example one wishes to mention.
August 2005, Vodafone exited Sweden;
March 2006, one of the worlds largest cel-
lular markets, Japan, got the royal Voda-
fone kick; August 2006, Belgium walked
the pink slip tapestry; January 2007, the
poor Swiss were shown the metaphorical
door. Really, Vodafone is more like a
portfolio investor than one with inten-
tions to improve market dynamics. And
most appropriately, its not enough for
Indian players to watch their backs, be-
cause when Vodafone hits, its the jaw
theyre aiming at. And the only sound we
suspect well hear is... Ouch!
Edit bureau: Devdeep Singh
23 february-8 march 2007 27