Vodafone gets slapped with £12 billion Indian phone bill

In the world of business, expansions are good. In fact, it’s a sign that the company is growing and has made enough profits to offset the costs of establishing another branch in another location. However, it’s also a risky move and one that must be thought of well–which brings me to the point of Vodafone’s foray into India. It can be said that the firm is doing good as a whole; in fact, Vodafone became the top dividend payer just recently in the FTSE 100.

Vodafone currently has 142 million users in India, and that’s a very, very huge figure. In fact, it’s actually close in value to the number of subscribers the firm has in the whole of Europe. While it might seem like the expansion into India was a good idea by the firm, there is more than meets the eye.

Research has revealed that Vodafone’s expansion in India has already cost the firm an estimated £12 billion. That’s £12 billion in a matter of four years and a half–and again, this is a very, very huge figure. These findings come after the Indian government found another matter to bring up against the firm, raiding Vodafone’s offices in Mumbai and New Delhi last weekend.

Mark James, an analyst at Liberum Capital, says that although Vodafone has numerous clients in India, the firm was only able to make £155m in cash from the country. Vodafone has shelled out billions of pounds in the process of making the move to India: spending £10.4 billion to buy out the Indian operations previous owner in 2007 and spending £1.7 billion to buy 3G spectrum last 2010.

India’s central bureau of investigations (CBI) raided Vodafone’s offices and those of rival broadband firms in relation to a case registered again them claiming “criminal conspiracy” in the granting of additional 2G spectrum.

James wrote: “If you wanted an example of the uncertainty surrounding Vodafone’s investments in India, look no further. Subscriber growth has been matched by painful price wars between competitors, with Vodafone far from immune. Add constantly moving regulatory goalposts and a well-documented dispute with the Indian government and it’s not a given that Vodafone will ever see an economic return on the £12bn we estimate it has sunk to date.”

The case against Vodafone has been controversial to say the least, and the firm has released the following statement: “The historical events under scrutiny by the Indian CBI pre-date Vodafone’s acquisition, from Hutchison Whampoa, of our interests in India. We are co-operating fully with the Indian authorities and will provide them with the information available to us.”

Source - The Guardian