Feb. 11 (Bloomberg) -- Vodafone Group Plc agreed to buy 67 percent of Hutchison Essar Ltd., India's fourth-largest mobile- phone company, for $11.1 billion to gain its first network in the world's fastest-growing wireless market.

Vodafone, based in Newbury, England, will buy the stake from Hong Kong billionaire Li Ka-shing's Hutchison Telecommunications International Ltd., Chief Executive Officer Arun Sarin said today on a conference call with reporters. Vodafone said it will offer to buy the remaining 33 percent from Mumbai-based Essar Group.

Vodafone beat Reliance Communications Ltd. and Hinduja Group in the auction of Mumbai-based Hutchison Essar, in the company's biggest deal since Sarin became chief executive in July 2003. Vodafone, the world's largest mobile phone company, is expanding in emerging markets as revenue growth slows in Western Europe. Less than 20 percent of the 1.1 billion people in India have a mobile phone.

``India is definitely a market of huge potential, with its number of new mobile customers even surpassing that of China,'' Martin Gutberlet, an analyst at researcher Gartner Inc., said by phone from Barcelona.

The transaction values Hutchison Essar at $18.8 billion, including debt, Vodafone said. Vodafone will assume about $2 billion in debt as part of the transaction. Vodafone said it will offer within weeks to buy Mumbai-based Essar's stake at the same price per share being paid to Hutchison Telecom.

The acquisition will add to Vodafone's earnings five years after the deal is completed, Sarin said.

Bharti Stake

Vodafone already owns 10 percent of Bharti Airtel Ltd., India's largest mobile-phone operator. Vodafone said today it gave Bharti an option to buy back a 5.6 percent stake for $1.6 billion. Vodafone will retain its remaining 4.4 percent stake in Bharti.

Hutchison Essar, which began operations in 1994 with a mobile license for India's commercial hub of Mumbai, ended December with 23.3 million subscribers and a nationwide market share of almost 16 percent. Its users account for a fifth of wireless connections in New Delhi and a quarter in Mumbai, two of India's largest markets.

Emerging Markets

Vodafone's purchase, which will close in the second quarter, is part of the company's strategy to boost growth by expanding in emerging markets and reducing or selling stakes in mature ones.

Last year it sold its 25 percent stake in Swisscom AG's mobile unit. Vodafone also completed a sale of its 25 percent stake in Proximus, a Belgian wireless company, to Belgacom SA last year.

In May, Vodafone bought Telsim Mobil Telekomunikasyon Hizmetleri AS in Turkey for $4.55 billion. The company also has stakes in South Africa and Egypt.

``Our announcement today is clear evidence of our strategy especially in developing our emerging market businesses,'' Sarin told reporters. ``We really repositioned the company in a fantastic way.''

There are about 6.5 million net new subscribers in India each month, making it the fastest growing major mobile phone market in the world. There is ``huge potential for growth'' because only 13 percent of the population have mobile phones, Sarin said.

Vodafone said about 40 percent of the population has cellular coverage access. Sarin said the company's priority is ``building and getting into'' rural areas.

Hutchison Telecom had set a Feb. 9 deadline for bids, and asked Reliance, India's second-largest mobile-phone company, and a planned alliance between India's Hinduja Group and Qatar Telecom QSC to submit offers, according to three people with direct knowledge of the process.

The Hinduja Group controls Ashok Leyland Ltd., India's second-largest maker of commercial vehicles, Gulf Oil Corp., which manufactures explosives and chemicals, as well as media, oil and banking assets.

To contact the reporters on this story: Alex Armitage in Barcelona at aarmitage@bloomberg.netChitra Somayaji in Bangalore at csomayaji@bloomberg.net.

Last Updated: February 11, 2007 17:18 EST