Keeping India On Speed Dial

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When Arun Sarin, CEO of British mobile-phone operator Vodafone, flew to New Delhi last month to announce a $1.5 billion investment in India, he signaled that the country was back on the radar of the telecom giants. In the 1990s, American and European companies--including Vodafone--rushed in. They soon rediscovered an old problem: India's government was less business friendly than advertised. Vodafone sold off a stake in an Indian regional mobile-phone operator in 2003; many other foreign companies left too.

Vodaphone's re-entry into India through a purchase of a 10% stake in Bharti Tele-Ventures, a mobile-phone operator with nearly 15 million subscribers, is an indication that India is too important a market to ignore. Thanks to a booming economy, India has 65 million mobile-phone users; the number grows more than 2 million each month. The Indian mobile-phone-services market is worth about $5 billion. And this time the welcome mat won't get yanked: earlier this year, the government permitted foreigners to own a majority stake in Indian telecoms. Prashant Singhal, a telecom expert at Ernst & Young India, expects more big deals in the next couple of years. This freer market has its hang-ups, though. Vineet Nigam, an analyst at ICRA, an Indian ratings agency, points out that average revenue per mobile-phone customer is declining as competition increases and as companies expand from cities into small towns. Still, the number of Indians using a mobile phone will probably have grown 50% this year. That kind of opportunity is bound to attract more attention.