Updated: Oct 31 2005, 06:29am hrs
Fridays $1.48 billion (Rs 6,700 crore) Vodafone-Bharti Tele-Ventures deal is a pointer to how big money is chasing a few good deals in the global telecom industry today. The deal puts Bhartis valuation at Rs 67,000 crore, 50% more than the companys valuation this March when SingTel had hiked its stake by around 3%. Worldwide spend on telecom services is estimated at $1.5 trillion in 2004almost the size of Chinas GDP and nearly two and a half times Indias GDP. Of this, US alone accounts for $720 billion. By 2007, global telecom spend is expected to hit $2 trillion. With subscriber base nearly stagnating in the West, there is no option for telecom majors but to chase high growth, high profit centres like India, China, Russia, Brazil or Mexico. Since the worlds largest subscriber base, China, has not opened its telecom sector to global investment, there are even fewer choices.

Hence, its companies like Vodafone that need profitable companies like Bharti more than the other way round. While Vodafones mobile revenues are growing at 4-5%, Bhartis are growing at 46%, and profits 43% year on year. Legacy telecom operators worldwide are facing a huge challenge to keep their bottomlines in shape. Their networks were created not only on high costs but parts of the network also have dated technology. Fighting nifty, modern operators in high growth markets worldwide is a big challenge. Modern operators are lowering service costs to the consumer very dramatically, affecting the growth of monolithic operators who are unable to keep pace because of higher infrastructure costs. For instance, while AT&T held 70% of the market in the US in 1984, its share is now down to just 33%.

Investors and customers have reason to be happy; the former since Vodafone has expressed its desire to increase its stake and the latter because they will now have access to a global network. With 170 million subscribers worldwide, Vodafone has targeted 10 million 3G subscribers by March 2006. Its 10% stake in BTVL must be seen in this light :as a hedge against global risks and low growth markets.