Vodafone faces more competition in India in GSM spectrum row

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Vodafone has strengthened its position in high-growth emerging markets after revealing a series of initiatives to improve the growth prospects of its Indian business, while securing a licence to launch services in Qatar, a potential platform for growth in the Middle East.

After its acquisition of a majority stake in India's Hutchison Essar and a rapid improvement in its Turkish and Egyptian business, Vodafone's emerging markets arm has taken centre stage this year.

Yet the company has hit a couple of potholes recently after the collapse of talks over a deal to increase its stake in South Africa's Vodacom and a spat between some of India's largest operators, including Vodafone Essar as the UK's company is now branded, and the Indian telecoms regulator over the issue of new spectrum allocations.

Despite the spectrum showdown, the Vodafone chief executive, Arun Sarin, told an investor conference held in London that the company's long-term growth target is to increase its market share to 20 to 25 per cent from 17.5 per cent.

Vodafone is keen to strengthen its position in India the world's fastest-growing mobile telecoms market and Mr Sarin said that once the "dust settles" on the spectrum issue, he would expect some consolidation among the Indian operators.

Despite the huge growth opportunity in India, where only one person in five has a mobile phone, Mr Sarin said having up to eight players in each "circle" the operating regions that India's mobile market is divided into is too many, although he stressed that any action would not be likely until the government's spectrum policy was clear.

India's Department of Telecommunications recently granted a licence to Reliance Communications that allows it to extend its network using the GSM standard, rather than the CDMA standard it has used in other territories. The plan is opposed by India's existing GSM operators Bharti, Vodafone and the smaller operator Idea which have petitioned the government to adhere to its original spectrum guidelines, whereby existing GSM licence holders have the first right of refusal to buy new spectrum to improve their coverage.

Bharti, India's largest operator, has been the most vocal in its opposition to the government's plans and has offered to pay about $673m (£329m) for a new slice of spectrum well above the regulator's minimum asking price.

The issue is due to come to a head this week when an Indian court will hear a petition and attempt to resolve the dispute.

Meanwhile, Vodafone, Bharti and Idea have signed an agreement to share transmission masts to slash costs and improve network coverage. Vodafone has struck similar deals to save costs in European markets, including Spain and the UK. Vodafone has revealed a separate five-year agreement with IBM to outsource its billing and general IT functions in India to save further costs.

Separately, a consortium led by Vodafone has won a licence to build a new network in Qatar, seeing off competition from AT&T, its US partner. Although the UK company's brand is used in Bahrain and Kuwait, due to a partnership agreement with local player MTC, Vodafone has not built a new network in the Middle East, and the new unit could act as a springboard for further investment as opportunities arise. Qatar has a population of only 840,000 and mobile penetration is more than 100 per cent, making it a less enticing investment prospect than markets such as India.