Wednesday May 19, 2010

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By Sam Devraj  ( Assistant Editor )

Vodafone's dilemma: Competitions in Indian market cuts its profits

VODAFONE Group Plc signalled increasing frustration with its key Indian unit yesterday, taking a charge of £2.3bn ($3.3bn) due to fierce competition and rapidly escalating spectrum costs.   The world’s second-largest mobile operator by revenue entered the Indian market in 2007 after beating rivals in a high-profile auction to make it the key territory in its faster growing emerging markets portfolio.   But the country has since handed out licences to many more operators, resulting in a fierce price war. A spectrum auction has gone far higher than any analyst had expected and major consolidation moves among operators are still not allowed.   The impairment charge on the value of the India assets, along with comments by Chief Executive Vittorio Colao that India’s telecoms rules did not make sense, cast a shadow on otherwise solid full-year results.   “We have seen very strong price declines,” Colao told reporters. “I don’t think these rules (on consolidation and spectrum) make sense. India needs investment. India is a vast country with a vast population still not fully able to communicate.   “What India needs is investment and good technology and this will not come in an environment with too many operators and fragmentation of investment.”   SingTel, southeast Asia’s biggest telco, has also warned of slower than expected gains in India through its associate Bharti Airtel.   Vodafone is engaged in a spectrum auction in India which has exceeded most expectations. Bids for one set of nationwide third-generation (3G) mobile spectrum licences reached $3.54bn (£2.5bn) on Monday (May 17), the 32nd day of the auction.   Most analysts had expected all-India spectrum to cost between $1.3bn (£910m) to $2bn (£1.4bn).   The 3G spectrum would allow firms to offer high-speed Internet and other premium services in the highly competitive market, which would prove highly attractive to major operators.   But on top of the auction, the Indian telecoms regulator has called for mobile operators to pay a one-time fee for the 2G radio spectrum with high bandwidth which they won several years ago, a move that has drawn fierce criticism from all involved.   Vodafone Finance Director Andy Halford told reporters the impairment did not include any costs for a possible 2G bill and said the company expected to negotiate with the regulator.   Analysts said the impairment indicated Vodafone had overpaid and said problems in the market, where Vodafone has over 100 million customers, overshadowed improvements elsewhere.

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