Vodafone India has reported a 14.7% increase in revenues, including a 2.3 percentage point benefit from Indus Towers, the Group’s network sharing joint venture, for the half year ended September 30th 2010, if you don’t take into account foreign exchange fluctuations. The growth, according to the company, has been driven by a 42.7% increase in the average mobile customer base and strong usage per customer partially offset by a fall in the effective rate per minute due to an increase in the penetration of lower priced tariffs into the customer base. India is now the second largest emerging market for Vodafone, after South Africa. At constant exchange rates, EBITDA for Vodafone increased by 23.5% for the quarter. Note that the quarterly figures below include the impact of foreign exchange. However, if you take into account exchange rate fluctuations, India service revenues declined quarter on quarter, with voice revenues declining 6.58%, even as messaging (2.56%) and data/VAS (1.82%) revenues increased.
Data/VAS revenues have been growing for Vodafone every quarter, even though the growth was marginal over the last two. The company says that it will look to capitalize on the increase in demand for data services, by developing its data networks in Indian and African markets, looking to offer data pricing plans to tiered plans and differentiated service levels, to encourage data adoption and adjust pricing to usage. As we had reported earlier, Vodafone is in the process of setting up a data services development center in Bangalore.
ARPU, Minutes Of Use, Customers & Churn
Vodafone’s ARPU declined quarter on quarter by a substantive 7.3% quarter on quarter, to Rs. 177 from Rs. 191. This is despite increasing total minutes of use to 104.87 billion, up from 103.2 billion the previous quarter. The company said that on its earnings conference call that its outgoing price per minute has stabilized, at Rs. 0.65 per minute. This appears to be higher than the some of its competitors, though, so there is room for further decline. Churn over the last four quarters increased to 41.4%, up from 38.8% the previous quarter. Note that Vodafone reports churn over the last four quarters, instead of reporting churn for the quarter.
Vodafone reported lower net adds for the quarter, up to 6.49 million, as compared to the previous quarter, where the company had reported net adds of 8.2 million. 94.8% of its subscriber base is prepaid.
Essar Has Put Options To Sell Its 33% Stake For $5 Billion
Vodafone has said that it had “granted put options exercisable between 8 May 2010 and 8 May 2011 to members of the Essar group of companies that, if exercised, would allow the Essar group to sell its 33% shareholding in Vodafone Essar to the Group for US$5 billion or to sell up to US$5 billion worth of Vodafone Essar shares to the Group at an independently appraised fair market value.
Vodafone agreed to adjust the payments that would be made under the fair market value put arrangements with the Essar group, in order to take account of the upfront cost of 3G licences, based on the total price of the licences secured. This amount has been calculated as INR 34 billion (£510 million) and is payable in the event that the Essar group exercises its put option to sell some or all of its Vodafone Essar Limited shares at fair market value provided that the maximum aggregate amount payable shall not exceed US$5 billion. This additional amount is not payable in the event that the Essar group decides to sell its 33% shareholding in Vodafone Essar Limited at the underwritten value of US$5 billion.”
Vodafone Tax Case
Vodafone says it will defend itself ‘vigorously’ against the High Court ruling that orders it to pay Rs. 11,000 crore in tax liability for the purchase of stake from Hutchison. It says:
“Vodafone International Holdings B.V. (“VIHBV”) believes that it has no liability for Indian withholding taxes on the Hutchison transaction in 2007 and continued to take actions to defend itself vigorously both during and after the six months ended 30 September 2010. On 31 May 2010 the Indian tax authority ruled that it had jurisdiction to proceed against VIHBV to recover withholding tax from VIHBV on the Hutchison transaction in 2007. VIHBV appealed this ruling to the Bombay High Court. On 8 September 2010 the Bombay High Court ruled that the tax authority had jurisdiction to decide whether the transaction or some part of the transaction could be taxable in India. VIHBV appealed this decision to the Supreme Court on 14 September 2010. An initial hearing before the Supreme Court took place on 27 September 2010 at which the Supreme Court noted the appeal and asked the tax authorities to quantify any liability.
On 22 October 2010 the Indian tax authorities quantified the alleged tax liability and issued a demand for payment of INR 112.2 billion (£1.6 billion) tax and interest. VIHBV has contested the amount of such demand both on the basis of the calculation and on the basis that no tax was due in any event. The possibility of whether VIHBV will be asked to make a deposit will be considered by the Supreme Court in its next hearing which is scheduled for 15 November 2010. The Supreme Court will also hear the appeal on the issue of jurisdiction at a later date. In addition, separate proceedings being taken against VIHBV to seek to treat it as an agent of Hutchison in respect of its alleged tax on the same transaction are now subject to appeal in the Bombay High Court where further actions of the Indian Tax authority are currently stayed and a hearing is scheduled for 23 November 2010. Vodafone Essar Limited’s case also continues to be stayed pending the outcome of the VIHBV Supreme Court hearing. VIHBV considers that neither it nor any other member of the Group is liable for such withholding tax or is liable to be made an agent of Hutchison.”