In a way, it's the kind of deal Vodafone was also seeking in Asia. With its current strategy to develop a global footprint and increase its presence in Asia, Bharti was a ripe pick. Bharti runs India's largest mobile phone network with over 14 million subscribers and is the only company that's present in all the 23 circles in the country. Apart from mobile services, it also provides basic (fixed line) services and offers broadband in 15 circles, apart from national and international long-distance services. Mittal has also ventured into telecom infrastructure with its submarine cable-landing station, which connects Chennai and Singapore. With the likes of IBM, Nokia and Ericsson running Bharti's telephone infrastructure, Vodafone was easily convinced.
With the Bharti deal in place, Vodafone has entered two of the fastest-growing telecom markets as it recently acquired a 3 per cent stake in China Mobile. Says Mahesh Uppal, telecom analyst and director, Telecommunications & Computer Information Systems: "Always savvy, Bharti has dealt with its partners effectively in the past. It has had partners like Telecom Italia and British Telecom and has had no problems unlike most others."
But now with two powerful and ambitious foreign firms as partners—both of whom wish to expand aggressively in Asian markets—Mittal may find it difficult to strike a balance between the two. It can also lead to a conflict of interests between the three partners. Already, SingTel has raised its indirect stake in Bharti Tele-Ventures. In May this year, the Singapore-based company paid $252 million to hike its stake in Bharti Telecom, the holding company that has a 45.71 per cent stake in Bharti Tele-ventures.
SingTel has publicly announced its intention to increase its stakes in Asian joint ventures. In fact, there was speculation that Mittal was pushing for a hike in the FDI ceiling limit in the telecom sector to enable SingTel to become a majority partner in Bharti Telecom. There were also rumours that the Singapore firm was merely waiting for the Indian government's policy to do that. With the entry of Vodafone, the equations have changed. For Vodafone too will not be happy with a minority stake. At some stage, it too will want to have a sizeable holding—at least 26 per cent to influence strategies. When the Bharti-Vodafone deal was announced, Vodafone CEO Arun Sarin made it clear that he planned to do that. "The transaction is consistent with our strategy of developing a global footprint in growth markets where we can create value for shareholders. We would like a greater share over a period of time."
Agrees a Delhi-based telecom analyst: "One has to see how SingTel views this development. In India, Vodafone is a smaller player but in Europe, where Vodafone is big, SingTel has very little going for it. These are three big companies who have to learn to cohabit. The next few months would be a crucial period for Bharti." What's in Bharti's favour, though, is that it has always managed contradictions and done things differently. It has been earning profits for a longer period than any other player in this sector. It successfully completed India's first 100 per cent book-building public issue in January 2003.
Mittal is confident there will be no conflicts. "Both the SingTel and Vodafone territories are complementary," he says. While the two foreign firms compete in some geographies, they have also joined hands in some areas. In Australia, the two have come together to share a 3G radio network infrastructure, which is likely to go live by November this year. Although the two companies will share 3G infrastructure, they will provide completely separate customer services and continue to compete vigorously for customer business.
Still, there's a growing feeling among experts that Mittal will soon cash out of the telecom business and pursue interests in newer areas such as agriculture and airports. Some analysts are convinced that this is an eventuality and Mittal is likely to play Vodafone and SingTel against each other in a bid to get even higher valuation for his stakes in Bharti Telecom and Bharti Tele-Ventures. Mittal strongly denies this and reiterates that telecom will continue to drive growth for the Bharti group.
Doubts persist for two reasons. One, Mittal has said he will not be running the company as its CEO and only continue to be a controlling shareholder once he turns 50. And that's just two years away. Two, Mittal has started spreading his wings beyond telecom. The group has interests in insurance with a venture with France'sAXA and has an agriculture JV with Rothschilds. In the recent past, Mittal has emerged as a serious contender in India's airports privatisation programme. So, the Mittal story is far from over.
