Vodafone says future in India could be in doubt after Supreme Court judgment over licence fees

  • Vodafone said its future in India could be in doubt unless the government stopped hitting operators with higher taxes and charges

  • The British media is calling Vodafone's ultimatum not to pump in more capital in India, a "potentially disastrous but fitting end to Vodafone''s big bet on India" where the destruction of value has been complete

  • Nick Read, Vodafone's CEO said the firm was not committing any more equity to India and the country effectively contributed zero value to the company's share price

Vodafone said its future in India could be in doubt unless the government stopped hitting operators with higher taxes and charges, after a court judgment over licence fees resulted in a 1.9 billion euro group loss in its first half.

According to British media reports, Nick Read, Vodafone's CEO has for all practical purposes issued an ultimatum to the Indian government.

Reports say that Read has communicated to the Narendra Modi government that it will not provide any more capital in India, according to an IANS report.

The British media is calling Vodafone's ultimatum not to pump in more capital in India, a "potentially disastrous but fitting end to Vodafone''s big bet on India" where the destruction of value has been complete.

Read said India, where Vodafone formed a joint venture with Idea Cellular in 2018, had been “a very challenging situation for a long time”, but Vodafone Idea still had 300 million customers, equating to a 30 percent share of the sizable market.

 Vodafone says future in India could be in doubt after Supreme Court judgment over licence fees

Representational image. Reuters.

“Financially there’s been a heavy burden through unsupportive regulation, excessive taxes and on top of that we got the negative supreme court decision,” he was cited as having said on Tuesday, according to a Reuters report.

Vodafone had asked the government for a relief package comprising a two-year moratorium on spectrum payments, lower licence fees and taxes and the waiving of interest and penalties on the Supreme Court case, which centered on regulatory fees.

Asked if it made sense for Vodafone to remain in India without such a relief package, he said: “It’s fair to say it’s a very critical situation.

The country's top court upheld a demand from the country’s telecoms department for $13 billion in overdue levies and interest last month, hitting the shares of both Vodafone Idea and rival Bharti Airtel.

Vodafone has clashed with Indian authorities over tax and regulatory issues ever since it entered the country with an $11 billion deal to buy 67 percent of Hutchison Essar in 2007.

Vodafone entered the market in 2007 via a multibillion-pound acquisition. Since then it has pumped in billions more, always hoping that the sheer scale of India would one day deliver returns to match. "Throughout, however, Indian officialdom welcomed Vodafone with all the warmth of a Himalayan mountaintop. It has been in court since the moment it arrived and used as a soft target by politicians and taxmen. The destruction of value has been completed," a report said.

The arrival of new entrant Reliance Jio Infocomm in 2016 added to Vodafone’s problems by sparking a brutal price war, a Reuters report said

It responded by combining its operations with Idea Cellular, a deal that closed in 2018.

Read said Vodafone was not committing any more equity to India and the country effectively contributed zero value to the company’s share price. As a result of the ruling, it has written down the value of its stake in the joint venture to zero.

It also owns a stake in Indian tower operator Indus Towers, along with Bharti Airtel.

Vodafone is also facing a pile of debt in the home markets of UK and would find it difficult to again invest so much in India.

Upgraded forecast

The world’s second-largest mobile operator reported improving organic revenue growth with signs of improvement in Spain and Italy and as it integrates a German cable acquisition.

It said organic service revenue rose 0.3 percent in the first half, as it returned to growth in the second quarter, while organic core earnings rose 1.4%.

It increased its forecast for adjusted core earnings to 14.8-15.0 billion euros from its previous forecast of 13.8-14.2 billion euros, but said India and lower cash flows following the sale of assets in New Zealand meant free cash flow would be “around” 5.4 billion euros, rather than the “at least” 5.4 billion euros previously forecast.

Apart from India, Read said he was pleased with the progress.

“This is reflected in our return to top-line growth in the second quarter, which we expect to build upon in the second half of the year in both Europe and Africa,” he said.

Read cut Vodafone’s dividend for the first time in May after tough market conditions and a need to invest in its networks and airwaves caused him to backtrack on his pledge not to reduce the payout.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Firstpost

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Updated Date: Nov 13, 2019 07:30:51 IST