Line clear for Vodafone approach

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Vodafone is expected to encounter few problems under India’s foreign ownership rules if it wins the takeover battle for Hutchison Essar, the country’s fourth-largest telecoms operator.

India last year relaxed rules limiting overseas holdings in a telecom company from 49 to 74 per cent.

Prashant Singhal, Ernst & Young India’s telecom industry leader, said: “Everybody wants to come into India and I don’t think from any perspective that the foreign investment policy is acting as any deterrent to them coming in.”

He declined to comment on the Hutchison Essar issue, however.

Speculation that Vodafone might face barriers in its potential $17bn bid followed a telephone call by Peter Mandelson, the EU’s trade chief, to India’s commerce minister Kamal Nath last week to ask that the company be treated fairly.

Vodafone is up against some of India’s most influential business families in the battle, including Anil Ambani, who controls Reliance Communications, and the Ruia brothers, owners of a 33 per cent minority stake in Hutchison Essar.

Although ownership limits in the sector are liberal, the industry has regulatory hurdles. The government has indicated that it is seeking the power to block any investments it sees as a security risk.

This would not appear to apply to Vodafone. Before his meeting last week with Arun Sarin, Vodafone’s chief executive, Dayanidhi Maran, India’s minister of communications and IT, said: “We want good players to come to India. Whatever they do is their business.”

More concerning for foreign operators are restrictions on accessing data networks from abroad.

Telecom companies operate large global network operating centres that track all phone and internet activity. India requires this data to be kept inside the country to help in tracing terrorist communication among other things.

Telecom companies do not want to build these multi-billion-dollar network centres just for India.

India is relatively liberal when it comes to market share. An operator can have majority control of a given market without falling foul of the regulator.

But a telecom company is not permitted to own more than 10 per cent of two separate operators in the same “circle”, or area of operations.

Vodafone is unlikely to fall foul of this rule as long as it disposes of an existing 10 per cent stake in another operator, Bharti Airtel.

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