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Vodafone Takes a Hit in India

Vodafone Group has taken an impairment charge of £2.3 billion (US$3.3 billion) on its Indian operation, saying that the issue of six new national mobile service licenses, after its entry into the Indian market in 2007, had led to "intense price competition".

The company made the announcement Tuesday while reporting its results for its fiscal year ended March 31. Vodafone's revenue increased by 8.4 percent to £44.5 billion (US$67 billion) for the year, while profits more than doubled to £8.61 billion.

Vodafone owns a majority stake in Indian joint-venture Vodafone Essar, where revenue grew quarter-on-quarter. The joint venture had over 100 million subscribers after increasing its market share.

India's top operators have reported declining revenue and profit growth for the quarter ended March 31, primarily because of fierce competition which has pushed down voice call charges at times to below 0.01 Indian rupees (US$0.0002) per second. The market is overcrowded and may be headed for consolidation, according to analysts.

Bharti Airtel, India's largest service provider, reported a decline in profits and flat growth in revenue for the quarter ended March 31, even though its customer base grew 35 percent over the same quarter last year.

Vodafone's problems in the country could increase as the Indian telecommunications regulator has recommended to the government that it charge incumbent telecom operators a one-time fee for the 2G spectrum they hold beyond the limit of 6.2 MHz in their license conditions. Vodafone Essar is one of the operators likely to be affected by the new charge if it comes into force.

The Telecom Regulatory Authority of India (TRAI) has suggested that operators should be charged for the additional spectrum at rates similar to those being bid in an ongoing auction of 3G spectrum in India.

Vodafone Essar is one of nine bidders in the 3G auction. The bidders are all incumbent players in the Indian market. The cost of a national 3G license had gone up to a whopping $3.5 billion by Monday, raising questions from analysts whether bidders can make money from 3G in the short term.

Vodafone Essar was the third largest mobile services operator in India at the end of March, with a market share of 17.26 percent. The company had a subscriber base of 100.8 million after adding 3.6 million subscribers during the month, according to data released by TRAI.

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