Vodafone Essar, formerly Hutchison Essar, is a cellular operator in India that covers 23 telecom circles in India. It is based in Mumbai. On July 2011, Vodafone Group agreed terms for the buy-out of its partner Essar from its Indian mobile phone business. The UK firm paid $5.46 billion to its Indian counterpart to take Essar out of its 33% stake in the Indian subsidiary. It will leave Vodafone owning 74% of the Indian business, while the other 26% will be owned by Indian investors, in compliance with Indian law. It is the second largest mobile phone operator in terms of revenue behind Bharti Airtel, and third largest in terms of customers. Vodafone had about 134.5 million customers as of February 2011.
On 11 February, 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on 8 May, 2007. Despite the official name being Vodafone Essar, its products are simply branded Vodafone. It offers both prepaid and postpaid GSM cellular phone coverage throughout India with good presence in the metros.
Vodafone Essar provides 2.75G services based on 900 MHz and 1800 MHz digital GSM technology. Vodafone Essar will launch 3G services in the country in the January-March quarter of 2011 and plans to spend up to $500 million within two years on its 3G networks.
History
Hutchison Essar (1992-2007)
In 1992, Hutchison Whampoa and its Indian business partner – Max Group, established a company that in 1994 was awarded a licence to provide mobile telecommunications services in Bombay (now Mumbai) and launched commercial services as Hutchison Max in November 1995. In Delhi, Uttar Pradesh (East), Rajasthan and Haryana, Essar Group was the major partner. But later Hutch took the majority stake.
By the time of Hutchison Telecom's Initial Public Offering in 2004, Hutchison Whampoa had acquired interests in six mobile telecommunications operators providing service in 13 of India's 23 licence areas and following the completion of the acquisition of BPL Mobile that number increased to 16. In 2006, it announced the acquisition of a company (Essar Spacetel — A subsidiary of Essar Group) that held licence applications for the seven remaining licence areas.
Initially, the company grew its business in the largest wireless markets in India — in cities like Mumbai, Delhi and Kolkata. In these densely populated urban areas it was able to establish a robust network, well known brand and large distribution network – all vital to long-term success in India. Then it also targeted business users and high-end post-paid customers which helped Hutchison Essar to consistently generate a higher Average Revenue Per User (ARPU) than its competitors. By adopting this focused growth plan, it was able to establish leading positions in India's largest markets providing the resources to expand its footprint nationwide.
In February 2007, Hutchison Telecom announced that it had entered into a binding agreement with a subsidiary of Vodafone Group Plc to sell its 67% direct and indirect equity and loan interests in Hutchison Essar Limited for a total cash consideration (before costs, expenses and interests) of approximately $11.1 billion.
Hutch was often praised for its award winning advertisements which all follow a clean, minimalist look. A recurrent theme is that its message Hi" stands out visibly though it uses only white letters on red background. Another successful ad campaign in 2003 featured a pug named Cheeka following a boy around in unlikely places, with the tagline, Wherever you go, our network follows. The simple yet powerful advertisement campaigns won it many admirers. Ads featuring the pug were continued by Vodafone even after rebranding. The brand subsequently introduced ZooZoos which gained even higher popularity than was created by the Pug. Vodafone's creative agency is O&M while Harit Nagpal was the Marketing Director during the various phases of it's brand evolution.
Timeline
1992: Hutchison Whampoa and Max Group establish Hutchison Max
2000: Acquisition of Delhi operations and entry into Calcutta (now Kolkata) and Gujarat markets through Essar acquisition
2001: Won auction for licences to operate GSM services in Karnataka, Andhra Pradesh and Chennai
2003: Acquired AirCel Digilink (ADIL — ESSAR Subsidiary) which operated in Rajastan, Uttar Pradesh East and Haryana telecom circles and rebranded it 'Hutch'.
2004: Launched in three additional telecom circles of India namely Punjab, Uttar Pradesh (West) and West Bengal.
2005: Acquired BPL Mobile operations in 3 circles. This left BPL with operations only in Mumbai, where it still operates under the brand 'Loop Mobile'.
2007: Vodafone acquires a 67% stake in Hutchison Essar for $10.7 billion. The company is renamed Vodafone Essar. 'Hutch' is rebranded to 'Vodafone'.
2008: Vodafone acquires the licences in remaining 7 circles and has starts its pending operations in Madhya Pradesh circle, as well as in Orissa, Assam, North East and Bihar.
Vodafone acquires Essar's Stake
On March 31, 2011, Vodafone Group Plc announced that it would buy an additional 33% stake in its Indian joint venture for $5 billion after partner Essar Group exercised an option to sell the holding in the mobile-phone operator. The deal will raise Vodafone’s stake to 75%. Essar will exit the company after it implemented a put option over 22% of the venture. Vodafone exercised its call option to buy an 11% stake.
In 2007, Vodafone granted options to Essar that would enable the conglomerate to sell its entire stake for $5bn, or to dispose of part of the 33 per cent shareholding at an independently appraised fair market value. In January 2011, Vodafone objected to Essar’s plans to place part of its 33% stake in India Securities, a small public company. Vodafone feared the move would give an inflated market value to Vodafone Essar. It had approached the market regulator SEBI and also filed a petition in the Madras High Court.
The final shareholding pattern post this deal was not provided by the company as it was not clear whether Vodafone's stake would exceed the 74 per cent FDI limit. Indian laws don't allow foreign companies to own more than 74% in a local mobile-phone operator. Vodafone has assured it will comply with local rules. Vodafone will have to sell that 1% to some Indian entity, or they’ll have to consider an initial public offering. Vodafone also said that final settlement is anticipated to be completed by November 2011. The completion of the deal would be subject to meeting certain conditions which include Reserve Bank of India's permission as well as valuation of the deal.
Vodafone Tax Avoidance Case
Vodafone has been embroiled in a $2.5 billion Tax dispute with the Indian Tax Authorities over its purchase of Hutshison Essar Telecom services in April 2007.It is being alleged by the Indian Tax authorities that the Transaction involved purchase of assets of an Indian Company , and are liable to be taxed in India.
