Indian pledge to treat Vodafone equally

Vodafone is preparing to swoop on Hutchison Essar in early February after Indian ministers gave chief executive Arun Sarin the go-ahead to bid for India's fourth-largest telecoms operator.

Mr Sarin met Indian government officials, including Kamal Nath, India's Commerce and Industry Minister, and Dayanidhi Maran, Information Technology and Communications Minister, yesterday to discuss potential regulatory issues around Vodafone's expansion in the Indian market. Mr Sarin did not discuss the financial details of its bid with the Indian ministers.

Mr Sarin described the series of meetings as "fruitful" adding that his understanding of the Indian government's foreign direct ownership laws was "fairly clear". The meetings will provide greater certainty for Vodafone as it attempts to fight off competition for Hutchison Essar from local rivals.

It was important that Indian authorities ensured there would be a level playing field during the bid process for Vodafone and local operators.

Vodafone can buy up to 74 per cent of an Indian operator according to Indian regulations and is preparing to bid for Hutchison Whampoa's 67 per cent stake in the Indian operator. EU Trade Commissioner Peter Mandelson contacted Mr Nath, his Indian counterpart, this week to urge Indian authorities to treat Vodafone and its local rivals equally during the bid process.

Vodafone faces stiff competition from local rivals for Hong Kong-based Hutchison Whampoa's stake. Essar, which currently holds a 33 per cent stake, has signalled its interest in buying out its larger partner. Reliance Communications, India's second largest operator, wants to acquire its rival while the billionaire Hinduja brothers have also expressed an interest.

Mr Sarin said Vodafone hopes to make a formal offer by early February after it has completed due diligence. He also hinted at the potential structure of the deal by describing Essar Group as a "natural partner". An agreement between Vodafone and Essar could remove a key stumbling block to the British company's plans. Vodafone is understood to have held talks with Essar, which is controlled by the Ruia family, about a partnership. "We are open to all options," Mr Sarin said.

Vodafone already owns a 10 per cent stake in India's largest mobile phone company Bharti Airtel but wants a larger slice of the world's fastest growing mobile market. Mr Sarin has identified India as a key growth region for Vodafone as it looks to offset pressure in mature European markets. Over 6 million new users take up mobile services every month in India, but only 13 per cent of the population owns a mobile phone, providing massive growth potential.

Mr Sarin also met with Sunil Mittal, head of Bharti Airtel, to discuss the ramifications of its move for Hutchison Essar.

Concerns that Vodafone could overpay to get control of Hutchison Essar have been fuelled by reports that the offer could value the Indian company at more than $17bn (£8.8bn). Vodafone has stressed that it will not breach its internal acquisition criteria to do the deal.

The private-equity companies backing Reliance's tilt at Hutchison Essar have also become uneasy with the spiralling valuation of the company since Vodafone's interest became apparent.