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Vodafone Essar Unveils Cost, IT Plans

Reuters
Monday, 10 Dec 2007 | 7:53 AM ET

Mobile phone giant Vodafone has announced plans to cut costs and expand coverage in India, where it expects growth to continue for a "substantial period of time" yet.

Vodafone announced on Monday that it had agreed an information technology outsourcing deal for its Indian unit with IBM, while a separate infrastructure sharing deal revealed on Saturday will enable it to save costs and capital.

The announcements came as Vodafone held an investor day in London on its Indian unit Vodafone Essar.

"We see the subscriber growth continuing at similar rates, give or take a couple of hundred thousand, for some substantial period of time," Asim Ghosh, managing director of Vodafone Essar, told analysts when asked about the broader Indian mobile market growth rate.

India added 8.1 million wireless users in October.

Vodafone bought a controlling stake in the now renamed Vodafone Essar, one of India's top cell phone groups with over 37 million customers, to secure its position in the rapidly growing market.

But to meet customer growth, telecoms operators in the world's fastest-growing markets are facing vast capital expenditure needs.

On Monday, the group said it had agreed a five-year deal with Vodafone Essar outsourcing all its IT operations to IBM India to boost efficiency and ensure a faster rollout of more varied services to customers.

IBM India will manage all of Vodafone Essar's IT operations including key applications such as billing and financial systems, with the exception of network service platforms.

The agreement follows an infrastructure sharing deal between Vodafone, Bharti and Idea Cellular to share 70,000 tower units in India, in order to help operators save costs and capital as they rollout across the country.

The new company, Indus Towers, will provide passive infrastructure services to all operators.

The companies will merge existing assets, leaving Vodafone Essar and Bharti each owning 42 percent of the new company and Idea owning the remaining 16 percent.

Tower Deal

Vodafone, the world's largest mobile phone company by revenue, has struck network-sharing agreements in Britain, Italy and Spain in a move to cut costs and ensure the company remains as "asset light" as possible.

But the deal in the vast Indian market goes further. Rather than share mobile phone masts with rival operators, Vodafone is sharing the towers, which are built on the base stations that form the backbone of the network.

Vodafone Chief Executive Arun Sarin told analysts it was highly unlikely that Vodafone would seek to monetize its share in the new company in the near to medium term.

He said Vodafone Essar was "fundamentally bang on plan" and he expected it to increase market share in the country to between 20 and 25 percent over the next few years from 17.5 percent now.

He expects Vodafone's EMAPA regions -- eastern Europe, Middle East, Africa, Asia-Pacific and affiliates -- to contribute one third of sales in the next few years. EMAPA contributes 25 percent of Vodafone revenue and 22 percent of earnings before interest, tax, depreciation and amortization.

Shares in Vodafone were up 0.4 percent.

"We would characterize this as a small, net positive," Collins Stewart analysts said in a note to clients, referring to the infrastructure deal.

"What it might do ... in conjunction with this morning's presentations, is encourage investors to pencil in higher medium term growth rates."

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