Despite its difficulties, India a valuable market for Vodafone

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Country accounts for 38% of telco’s global user base, 10% of total revenue

Surajeet Das Gupta & Sounak Mitra  |  New Delhi  

It will be difficult for Vodafone’s global chief executive Vittorio Colao, making his first official visit to India since a new central government took charge earlier this year, to miss the country’s significance in the British telecom major’s international operations. According to publicly available data, 38 per cent of Vodafone’s 434-million subscriber base is in India, and the country accounted for £4.4 billion (over 10 per cent) of its global turnover in 2013-14. Marten Pieters, the India CEO of Vodafone, which is embroiled in a Rs 20,000-crore tax dispute here, recently raised concerns over difficulties in doing business in the country. But India’s contribution to Vodafone’s global revenue is more than that of either Italy (£4.3 billion) or Spain (£3.5 billion), and only a little less than the company’s turnover from its Africa operations through Vodacom (£4.7 billion). Also, 18 per cent of the company’s staff operates out of India – the most in a country and more than even the UK headquarters’ strength of 16 per cent of all employees. Pieters’ reservations might have emanated from the fact that the telco does not make much money in India. But Vodafone’s Ebitda (earnings before interest, tax, depreciation and amortisation) margin, a key indicator of a telecom firm’s performance, for its Indian operations is a reasonable 31.8 per cent – more than its global average of 29.4 per cent.

Interestingly, Vodafone’s margins in India are higher than those in the UK (22.1 per cent), Spain (22.4 per cent), other Europe (31.4 per cent) and close to Germany (32.6 per cent). The company has, in fact, acknowledged this in its annual report by saying it saw its Ebitda margins grow only in India and Australia in 2013-14; there was a decline in most other markets. Besides, India also happens to be a market where Vodafone has kept pace with competitors and not yielded any ground. During the April-June quarter, the company increased its subscriber base in the country by 3.3 million. By comparison, Bharti Airtel, the country’s largest cellular operator, added 3.8 million incremental users, while Idea Cellular added 3.2 million. While Bharti Airtel’s revenue from mobile services in India increased 10 per cent in the June quarter to Rs 12,752 crore, Vodafone India reported 10.3 per cent organic growth in revenue to £1.02 billion (about Rs 10,323 crore). At the end of March, Vodafone India’s average revenue per user (arpu) stood at Rs 199, higher than Bharti Airtel’s India mobile arpu at Rs 196. Also, in terms of revenue share in the mobile market, Vodafone’s share in the March quarter rose to 23.4 per cent from 23 per cent in the year-ago period. In terms of profits, India accounted for 4.4 per cent of Vodafone’s global adjusted operating profit (AOP) in 2013. The country’s contribution to the AOP, of £354 million, was higher than those of the UK (£187 million) and Spain (£181 million), but much lower than Germany or Italy. That is understandable because the company is still in the investment phase in India and has paid a huge amount to buy spectrum here. In 2013-14, Vodafone spent over £0.7 billion to part-pay for the spectrum it had bought from auctions earlier. The British telecom giant is facing a tax dispute of about Rs 20,000 crore in India because of a retrospective taxation rule brought by the previous government. The dispute between Vodafone Plc and the Indian government, over a liability of more than Rs 11,200 crore, along with interest, on the company’s 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar, has also led to negative perception about ease of doing business in the country. Since efforts for conciliation between the two sides have not materialised, the dispute will now be resolved through arbitration. Pieters had earlier said the government needed to rationalise taxation across industries, including the heavily taxed telecommunications sector.

 

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