Vodafone Group Plc has told the Indian government it plans to invest more than $2 billion in the country, a victory for a policy change designed to boost foreign interest and thin out the crowd of a dozen players in the mobile phone market.
The investment plan by Britain's Vodafone follows the removal in August of a cap on foreign firms investing in telecoms companies which the government believes can spur consolidation in an industry executives have long believed ripe for it.
India's mobile phone market is the world's second-biggest after China by number of customers. But phone carriers in the country operate on wafer-thin margins and cut-throat competition that have hampered infrastructure investments needed to develop services.
"I do believe that the market is too crowded," Telecommunications Minister Kapil Sibal told Reuters in an interview in his office in New Delhi.
"We want, of course, a consolidation of the market and I think with the 100 percent FDI that consolidation will take place," he added, referring to foreign direct investment.
Earlier foreign firms were restricted to holding no more than 74 percent of telecoms firms in direct ownership.
Sibal said Vodafone had indicated to him that it would invest more in its local unit
following the rule change.
Vodafone, which entered India in 2007 by acquiring Hutchison Whampoa's local cellular assets in an $11 billion deal, directly and indirectly owns a combined 84.5 percent of Vodafone India, the country's second-biggest telecoms company by users.
"Vodafone is bringing in more than a couple of billion dollars
," Sibal said. "They will bring in investment and take advantage of the 100 percent FDI that is now in place."
He gave no further details of Vodafone's plans, but said he expected more foreign companies to increase their stakes in their Indian businesses. A Vodafone spokesman in London was not immediately available to comment.
A source earlier this month told Reuters that Vodafone intended to increase its stake in the Indian unit following the rule change.6-8 carriers predicted
Leading carriers such as Bharti Airtel Ltd <BRTI.NS>, India's biggest mobile operator by market share, and the local unit of Vodafone have seen their financial performance improving in the past two quarters after a court order last year revoked the permits of several smaller players following a massive licensing scandal.
However, the market still has seven carriers with nationwide networks and five more operating regionally, more than most countries. Industry and analysts have said restrictive government policies have discouraged deals in the sector.
"You will see a lot of players who cannot compete with others actually drop out and therefore the market will consolidate," Sibal said, adding that he expected the number of players to fall to six to eight within the next four years.
The government plans to press on with liberalisation measures, Sibal said. The telecommunications ministry expects to release new mergers and acquisition guidelines by the end of October, the minister said, adding that he was hopeful that mergers between operators accounting for a combined market share of up to 60 percent will be allowed.
Sibal also said it was "possible" that the government could hold another auction of third-generation (3G) spectrum, which would be the first since 2010, but he gave no timeline for this.
The government plans to auction 4G airwaves in the 700 megahertz band in "a year or so", he added.
© Thomson Reuters 2013