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This story is from February 12, 2007
New owners to get over 22.3 million customers
In corporate deals, as in life, sometimes it is easy to miss the woods for the trees.
MUMBAI: In corporate deals, as in life, sometimes it is easy to miss the woods for the trees. As the race for Hutch Essar draws to an end, lets step back and take a look at what makes Hutch such a catch — its valuation has nearly doubled from $10 billion over six months — and whether for the winner the prize will justify the price.
For a start the obvious: In a single stroke the new owner/owners get(s) over 22.3 million customers, revenues of close to Rs 6,000 crore, infrastructural reach across the country, not to mention a great brand and a professional management team.
Then there is being able to establish itself in one of the world's fastest growing markets, that is adding six million new users every month, as mobile usage continues to shoot up with calling party pays and cheap handsets. And as these millions use their mobile phones more often — accessing the Net is predicted to be a major revenue driver — so will Hutch's average revenue per user (ARPU).
GSM continues to be the most popular platform internationally and as 3G services incorporating voice, data and video take off in this country, existing brands will be in a position to take first advantage. But these opportunities also come with their own set of challenges.
Also critical, say consultant AT Kearney, will be being able to hold onto its existing customer base, as competition hots up from home-grown brands. Hutch's ARPU is currently pegged by industry estimates at Rs 380 per month and has been on a decline. Compared to this, average ARPU for an user in US is around $50 (Rs 2250) per month.
So whether the current valuations ($18 billion-$20 billion ) are high or not depends on how well the new owner eventually is able to push up usage and margins while holding onto its clientele.
That said India iremains a highly regulated market and entry barriers for new players are still quite high all of which should help Vodafone going forward.
For a start the obvious: In a single stroke the new owner/owners get(s) over 22.3 million customers, revenues of close to Rs 6,000 crore, infrastructural reach across the country, not to mention a great brand and a professional management team.
Then there is being able to establish itself in one of the world's fastest growing markets, that is adding six million new users every month, as mobile usage continues to shoot up with calling party pays and cheap handsets. And as these millions use their mobile phones more often — accessing the Net is predicted to be a major revenue driver — so will Hutch's average revenue per user (ARPU).
GSM continues to be the most popular platform internationally and as 3G services incorporating voice, data and video take off in this country, existing brands will be in a position to take first advantage. But these opportunities also come with their own set of challenges.
When number crunchers pegged the enterprise value of Hutch, along with ARPU (average revenue per user), they also factor in customer retention rate, cost of new acquisitions and the inevitable, cost of capital. As mobile talk time plateaus, the trick is to move customers to value-added services that provide higher revenue margins and this is where Hutch's new owners will have their task cut out for them.
Also critical, say consultant AT Kearney, will be being able to hold onto its existing customer base, as competition hots up from home-grown brands. Hutch's ARPU is currently pegged by industry estimates at Rs 380 per month and has been on a decline. Compared to this, average ARPU for an user in US is around $50 (Rs 2250) per month.
So whether the current valuations ($18 billion-$20 billion ) are high or not depends on how well the new owner eventually is able to push up usage and margins while holding onto its clientele.
That said India iremains a highly regulated market and entry barriers for new players are still quite high all of which should help Vodafone going forward.
End of Article
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