Vodafone, the biggest mobile phone company, on Friday bought a 10 per cent stake in India's Bharti Tele-Ventures for £820m ($1.4bn), reversing its decision two years ago to pull out of the fast-growing Indian telecommunications market.

Vodafone, which sold a minority holding in a regional Indian telecoms operator in 2003, indicated the 10 per cent stake was the precursor to taking a larger stake in Bharti.

Arun Sarin, Vodafone's India-born chief executive, said: “We may be larger investors if things go well for us and we can buy shares at a decent price.”

The move comes a week after the Indian government lifted the foreign direct investment limit in the telecom sector to 74 per cent from 49 per cent.

Expansion into high-growth emerging markets such as India has become a key focus for European mobile telecoms operators, whose home markets have reached saturation point.

India is the third biggest mobile market in Asia after China and Japan, with 65.1m mobile phone users.<

That number is expected to grow at a compound rate of 35 per cent over the next five years.

“This transaction is consistent with Vodafone's strategy of developing our global footprint in growth markets, where we can create value for shareholders,” Mr Sarin said.

However, some analysts expressed concern the transaction would leave Vodafone with yet another overseas minority holding with uncertain prospects of gaining full control.

Vodafone already has a 45 per cent stake in Verizon Wireless in the US and a 43.9 per cent stake in SFR, the French mobile operator, and has struggled to make any headway in further expanding these holdings.

SingTel, the Singapore-based telecoms group, already owns 31 per cent of Bharti and could vie with Vodafone for any future stake increases.

Vodafone will pay Rps351 a Bharti share, a 7.4 per cent premium on the five-day average share price on October 27.

In spite of having only a 10 per cent stake, the company will have special rights equivalent to those of SingTel and will take two seats on the board, while SingTel will retain three seats.

Two years ago Vodafone sold a stake of just over 20 per cent in RPG Cellular, a regional operator in Chennai, as the holding did not give it a strong enough position in India.

Bharti, however, is India's largest mobile operator by subscribers and one of a few operators with a national footprint.

The company has more than 14m mobile customers and a $13bn market capitalisation. In the six months to September, mobile revenues at the company increased 58 per cent to Rs36.5bn ($810m). Just over half of the shares 5.61 per cent will be bought from Warburg Pincus, the US private equity firm, with the remainder coming from Bharti Enterprises.

Vodafone shares rose 2½p to 143½p on Friday.

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