By John Elliott

(FORTUNE Magazine) – WHEN NEWS BROKE three months ago that Britain's Vodafone was bidding for a controlling 67% stake in Hutchison Essar, India's fourth-largest mobile-phone operator, Sunil Mittal, who controls Bharti Airtel, the market leader, said he was determined to stay friendly with Vodafone CEO Arun Sarin. That seemed optimistic because Vodafone, which had a 10% stake in Bharti's mobile business and had been seen by Mittal as a long-term partner, was threatening to become a tough competitor, bringing foreign expertise and improved technology to the world's fastest-growing mobile-phone market.

But skeptics who thought the two men would fall out underestimated their friendship and their common goals. Both are tough professional Indians of roughly the same age (Sarin is 52, Mittal, 49), and both are driven by success. Their families have meals together in London and have met up on holiday in Istanbul. And now that Vodafone has emerged as the winner to take control of Hutchison Essar, the two companies intend to cooperate to such an extent that there are murmurings about their real intentions. Vodafone will keep a 4.4% stake in Airtel and is willing to wait 18 months for the $1.6 billion it is owed for selling a 5.6% stake back to Mittal (at a less-than-market price but still a 90% profit on the amount it paid for the whole stake in 2005). The two companies have also provisionally agreed to pool their 70,000 telecom towers and allow Vodafone traffic to use Bharti networks.

Might they go further and combine their 55 million customers, who make up 40% of the market? "The signals are there," says an industry expert who declined to be named. "The market needs consolidation to meet the cutthroat competition."

Mittal was unavailable for comment, but Rajan Mittal, his younger brother and joint managing director of Bharti Airtel, says the relationship will not go further. Sarin, speaking to FORTUNE after the deal was announced, didn't seem so sure, though he said there wasn't any likelihood of a merger in the near future and he expected "intense competition" because Vodafone wanted to be No. 1 by 2010. But he wouldn't rule out a combination with Bharti down the road. "It's hard to call," he said, "but it could happen."

Bankers and analysts are skeptical, saying Sarin would have problems persuading investors to let him mount an offer at current valuations. The Vodafone bid values Hutchison Essar at $18.8 billion, more than twice the value set last June, when a 5.1% stake changed hands for $450 million. But a joint venture containing both companies' Indian telecom interests wouldn't need the vast cash outlays analysts fear or violate Indian regulations on cross-holdings.

There are two other obstacles. One is Vodafone's minority partner in Hutchison Essar, the Ruia family, which is upset it wasn't consulted about cooperating with Bharti. The other is Singapore's SingTel, which has a 30% stake in Bharti and would like more. Either one could try to spoil a blossoming friendship.