Vodafone eyes Hutchison Indian mobile assets operator

Vodafone is considering a switch out of India's largest mobile operator Bharti Airtel and into the fourth-biggest carrier Hutchison Essar as it looks to increase its exposure to the fastest growing mobile phone market in the world.

Vodafone declined to comment on reports that it is investigating a potential acquisition of Hutchison Essar. The Indian operator is majority owned by the Hong Kong conglomerate Hutchison Whampoa, owner of the 3 network in the UK, and speculation is building that a number of companies are preparing to buy the company. Hutchison has refused to comment.

Hutchison Essar is 67 per cent-owned by Hutchison Whampoa with the rest controlled by the Indian manufacturing and service conglomerate Essar.

Indian group Anil Ambani, owner of the country's second-largest operator Reliance Communications, is reportedly set to launch a bid to buy out its rival as early as this week with backing from the private-equity firm Blackstone. The offer is expected to top $14bn ($7.1bn). Reports also suggest that Essar is preparing a bid to buy out its joint venture partner, while the Egyptian operator Orascom and Malaysia's Maxis could also move for Hutchison Essar.

Vodafone has conducted a shake-up of its assets over the past year to reposition its business toward high-growth markets in Africa, Eastern Europe and Asia. Arun Sarin, the Indian-born chief executive of Vodafone, has expressed a desire to increase the company's presence in the rapidly growing Indian and Chinese markets where the company holds minority stakes in the leading regional operators.

Vodafone entered the Indian the market in October 2005 when it paid £820m for a 10 per cent stake in Bharti, India's largest operator and one of only three companies with a national footprint. Mr Sarin said recently that the value of its Indian asset had risen substantially over the past year.

Vodafone likes to have control, or at least a majority holding, in its assets. The Indian government lifted the foreign ownership ceiling to 74 per cent from 49 per cent in November last year.

India is the world's fastest growing market for mobile telecoms with over 6m new users signing up every month. Over 136m Indians now have a mobile phone but that represents less than 20 per cent of the country's population, providing massive upside for potential investors.

A move to switch out of Bharti, the number one operator in India, into the fourth-largest player could evoke memories of Vodafone's unsuccessful attempt to switch US assets in 2004.

Vodafone owns a 44 per cent stake in the leading US mobile operator Verizon Wireless but two years ago Mr Sarin led a bid to switch out of the company and instead buy the struggling AT&T Wireless, the fourth-largest US player, to get full control of a US carrier. Cingular Wireless outbid Vodafone and the British operator has had to reinforce its commitment to the US market ever since. The bid also undermined Mr Sarin's position at the helm of Vodafone.

Vodafone's appetite for emerging markets assets is growing. It purchased the Turkish operator Telsim at the start of the year and recently upped its stake in its Egyptian subsidiary. It has also raised funds through the sale of minority stakes in Belgian and Swiss operators that could be used to fund further acquisitions in emerging markets.