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Will Vodafone shut down in India? CEO says situation 'critical'

Vodafone is the world's second-largest mobile operator and is reportedly improving organic revenue growth in Europe but future in India seems doubtful.


Will Vodafone shut down in India? CEO says situation 'critical'
File Photo. Image Credit: Flickr

HIGHLIGHTS

  • Vodafone Chief Executive said, "financially there's been a heavy burden through unsupportive regulation, excessive taxes."
  • Vodafone had asked the government for a relief package for license fees but the Supreme Court ruled in favor of the telecoms department.
  • The arrival of new entrant Reliance Jio Infocomm in 2016 added to Vodafone's problems by sparking a brutal price war that many companies could not survive.

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 license fees resulted in a 1.9 billion euro group loss in its first half. Chief Executive Nick 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% share of the sizable market. "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 said on Tuesday.

Vodafone had asked the government for a relief package comprising a two-year moratorium on spectrum payments, lower license 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, Chief Executive Nick Read said: "It's fair to say it's a very critical situation."

India'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% of Hutchison Essar in 2007.

The arrival of new entrant Reliance Jio Infocomm in 2016 added to Vodafone's problems by sparking a brutal price war. 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's shares were up 1.7% at 163 pence at 1040 GMT as investors focused on an upgrade to its earnings forecast rather than 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% 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.

(With inputs from agencies.)


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