Vodafone India has struck a deal worth around 4 billion Indian rupees ($60.3 million) to acquire broadband provider YOU Broadband, according to a report from India's Economic Times newspaper.
The deal would give Vodafone India control of fiber-optic networks covering some of India's biggest urban markets, and could help to support its rollout of 4G services amid growing competition in India's mobile data market.
YOU Broadband operates 3,000km of optical fiber and has deployed 6,000 miles of last-mile lines in 12 cities, including the major financial center of Mumbai.
News of the deal follows reports in January that Vodafone was in talks with YOU Broadband, currently owned by TRG Capital, about a possible takeover. (See Why Vodafone India Wants YOU Broadband.)
The operator, a subsidiary of UK-based Vodafone Group plc (NYSE: VOD), is now reported to have sought approval from India's Foreign Investment Promotion Board for the YOU Broadband move.
India's telecom market is currently witnessing a spate of consolidation activity. Reliance Communications Ltd. , India's fourth-biggest mobile operator, recently acquired Sistema Shyam TeleServices Ltd. , India's only pure-play CDMA operator, and is also in merger talks with number-five player Aircel Ltd. .
In December, market leader Bharti Airtel Ltd. (Mumbai: BHARTIARTL) acquired a smaller player called Augere Wireless to bolster its portfolio of spectrum licenses.
Concern is growing about the possibility of a price war in India's fast-developing 4G market: New entrant Reliance Jio is believed to be on the verge of launching a commercial 4G offering, while existing telcos are busy extending their own 4G networks. (See RCom May Soon Join 4G Race in India.)
Vodafone Group boss Vittorio Colao told reporters at last month's Mobile World Congress that he expected RJio to be a "formidable competitor" while complaining about levels of competition in the country.
"There are too many players in India and too many are subscale," he said during a press briefing, while refusing to comment on Vodafone's own takeover intentions. "The amount of investment has been insane since 2007."
As noted by Light Reading in January, YOU Broadband's significant presence in Mumbai is likely to be a major attraction for Vodafone. Besides providing triple-play services to consumers, the company offers leased lines in the enterprise sector and now claims to have spent about INR4 billion ($60.3 million) on the rollout of its networks.
Most of India's Internet service providers are thought to have extremely loyal subscribers in the specific areas they serve. "These players often have fiber or copper installed in the last mile and have managed to build a healthy base of customers that exhibit a relatively high degree of stickiness," said Deepak Kumar, the founder analyst of B&M NXT, a market research and advisory firm, during a discussion with Light Reading in January.
Vodafone has grown to become India's second-biggest operator since acquiring the Hutchison Essar business for a fee of about $11 billion back in 2007.
However, the company has had a series of run-ins with Indian authorities and is currently embroiled in a tax dispute relating to the original Hutchison Essar deal.
Last month, authorities warned Vodafone they might seize its assets unless the operator paid a tax bill of $2.1 billion. (See Eurobites: India Turns Up Tax Heat on Vodafone.)
— Iain Morris, , News Editor, Light Reading