Vodafone takes over Hutch- Business&Economy

Bordering on sycophancy, India Inc. celebrates, 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 e l e c o m

telecom

f e at u r e

VodAfone tAkes oVer HutcH

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

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

b u s i n e s s & e c o n o m y23 february-8 march 200726

t e l e c o m

23 february-8 march 2007 27

telecom

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 Germany’s 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 we’ve not even included the current year’s forecasts. So what else can go wrong with Vodafone and India?

give us time, we can do worseA 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

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 world’s largest telecom corpo-

rations has chosen India to further their mammoth investment plans,

haven’t they? Uhh ohh, the scenario’s not quite good, in fact, it’s bleak!

So 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 India’s largest telecom corpora-tions, while already having invested in India’s number one telecom company? Well, the answer’s not even ironic. Indi-ans being what we’re 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 Vodafone’s 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,

vodafone takes over hutch... ouch!!!

Arun Sarin (right), CEO, Vodafone, with Asim Ghosh, MD, Hutch Essar

wisdom for everyone in terms of early market signals, operational manoeuvres to handle slow-downs.” According to Jig-nish Dabhalia, Niche Broking, “The buoyancy in the mobile telephone seg-ment portends well for the telecom in-dustry, which will observe a three-fold increase in subscribers from the current 150 million to 398 million in the coming five years.” With such a positive outlook, all the players have lined up big expan-sion plans for the coming few years. Bharti has lined up a capex of over $2 billion, RCL is not far behind with invest-ment plans of $1.5 billion and Idea Cel-lular has already filed for an IPO and would be raising close to Rs.21.25 billion to fund its expansion plans.

Then pray, why should the other play-ers be morbidly worried? The fact is that globally, when relegated to a follower po-sition, Vodafone has had a background of decimating market profitability condi-tions by ensuring that cut-throat price wars and warfare promotional offers completely devastate competition. One must consider the fact that Hutch is only the fourth largest telecom player in the country with presence in only 18 circles. Whereas players like Airtel, BSNL and Reliance

The 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.

the sitting duck called ‘trai’

have a widespread net-work covering the entire geography of India.

Given the losses that they can bear, it’s quite clear that Vodafone has extremely (and abysmal-ly) deep pockets; and reserves that can bleed any Indian telecom company desert dry, BSNL, Idea, Reliance et al. And the most worrisome part of it all is that, Vo-dafone internationally doesn’t have a sparkling white background, with respect to either ethics or lawful behaviour, espe-cially when it comes to government deal-ings, which India has loads of.

guilty until proven innocentFor newbies, we could start blabbering about Vodafone’s scurrilous history of rocking scandals in truly multinational style, of which the major one included Greek regulators in 2006 fining it a whop-ping $128 million for deliberately failing to stop wire-tapping of top government officials, including, you won’t believe it, the Prime Minister himself (PM Costas Karamanalis). Or we could mention how the Vodafone manager who blew the lid

off this scandal, was mysteriously found hanging some time after this came out. Or we could talk about how Hungary’s Competition Office convicted Vodafone and slapped it with

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, Kenya’s 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 world’s 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, it’s not enough for Indian players to watch their backs, be-cause when Vodafone hits, it’s the jaw they’re aiming at. And the only sound we suspect we’ll hear is... Ouch!

Edit bureau: Devdeep Singh

SIM’ple weapons for the war!Market share of telecom operators (in %)

Source: Niche Broking

“Hutch Essar is an impressive, well run

company that would fit well into Vodafone Group,”

Arun Sarin, CEO, Vodafone

Sour

ce: T

RAI

Sep

’06 129.51

Oct ’

06 136.22

Jan ’0

7 156.31

Nov ’0

6 143.02

Dec ’0

6 149.50

Mobile subscriber growth (in millions)

Up up and higher!