Tuesday, May 18, 2010

Vodafone struggles in India despite treble growth in yearly profit

Despite reporting increase in profit, British Telecom giant, Vodafone, is suffering in India due to intense competition and high impairment charge imposed by the Indian authority over its Indian assets and unprecedented hike in 3G spectrum bidding.

On May 18, 2010, the company published its report for FY 2009-2010 ending on March 31, 2010. The company observed about three-times growth in net profit at ₤8.61 billion against ₤3.08 billion in FY 2008-2009.

Overall revenue increased by 8.4% to ₤44.5 billion. Vodafone credited this high profit to its growth in mobile data and fixed coupled with cost cutting measures.

EBITDA rose by 12.5% to ₤ 807 million and revenue grew by 16% to ₤3.11 billion.

India remained one of the fastest growing markets for the company. In FY 2009-2010, the company added 32 million new customers accounting for 341 million around the world.

Vodafone Group PLC, which is the second-largest mobile operator in the world in terms of revenue, entered the Indian market in 2007 and since then observed consistent growth.

However, incurring a high impairment charge of ₤2.3 billion coupled with intense price competition from other operators in the market and increasing cost of mobile spectrum is affecting the company’s profit margin.

Over the year, Indian government allowed many operators in the market and there is no opportunity for consolidation. Moreover, the bid for 3G spectrum went beyond analysts’ expectation and still going strong.

Chief Executive, Vittorio Colao said, "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." he added.

The impairment charge and India’s telecom rules affected the company’s overall yearly performance.

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