Firstly, there is still the $2 billion tax bill emanating from Vodafone’s takeover of Hutchison Essar in 2007. If and when that is finally resolved, further charges may need to be applied to the business.
Secondly, the regulatory environment in India is hardly encouraging to companies operating in the market. Continuous addition of new players into an already intensely competitive market is imposing a huge burden on players.
That leads to the third concern for Vodafone as the Indian 3G auctions play out. As prices creep up above $3.5 billion, it is increasingly looking like the situation in Europe a decade ago.
This time, players like Telenor have stayed away. But to stand any chance of holding on to its existing high-end 2G customer base, Vodafone is stuck in the 3G conundrum. Without sufficient new revenues from 3G (as operators found out in Europe), Vodafone’s only hope will be to accentuate its lean operations in the market.
The concerns in India mean Vodafone is now hard pressed to stabilize its core European base before the inevitable slowdown in its emerging market operations hits revenues. Vodafone has been quick to do this and, to its credit, it has reinvented itself as a total communications provider across much of Europe.
Data services have boomed and Vodafone now has over 5.6 million fixed broadband customers. Despite being a supposedly mobile-only player a few years ago, fixed broadband contributed £3.3 billion in the year – approximately 7.4% of group revenues.
Cost-wise, Vodafone is pushing ahead with plans to trim a total of £2 billion from its cost base by 2011. However, it will need to impose a leaner operations strategy on its European base going forward.