Vodafone India in red following spectrum scandal investigation

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Indian government upped its battle with British mobile network Vodafone after raiding its Mumbai and Delhi offices during the last few days. The company started operating in India in mid 2007 and has spent an estimated $18.53 billion during the last four and a half years.

Vodafone is currently facing financial crisis after heavily investing in its Indian venture. Since 2007, Vodafone spent $16.6 billion to buy out the Indian operations previous owners and $2.63 billion on buying 3G spectrum licence in 2010.

Earnings from Indian market resulted only $239.35 million in cash, after neck to neck price wars with other competitors and the cost of investment in its network. Total revenues cover 8 per cent share of Vodafone?s earnings with a customer base of 142 million subscribers, securing the position of the third biggest operator.

Uncertainty surrounding Vodafone?s investments in India seems endless with subscriber growth painfully impeded by price wars between the competitors. Mark James, analyst at Liberum Capital, says?constantly moving goalposts and a well-documented dispute with the Indian government are making matters worse for Vodafone.


Cases against Vodafone and rival Bharti Airtel have been registered with Central Bureau of Investigation (CBI) recently and as a result?raids were conducted at Vodafone?s Mumbai and New Delhi offices and Bharti Airtel?s office in Gurgaon, near New Delhi. The telecom operators have been charged with involvement in a??criminal conspiracy? with two former telecom ministry officials in granting of additional 2G spectrum.

Vodafone has been dragged into the scandal surrounding successive mobile spectrum sell-offs in which former telecom minister Andimuthu Raja has already been jailed on accusations of taking bribes during the controversial 2008 auction of 2G airwaves. Although Vodafone has not been linked to the scandal which saw the under-selling of licenses costing $45.40 billion in lost taxpayer revenue.

Shyamlal Ghosh, former telecoms secretary, and JR Gupta,?deputy director-general Department of Telecommunications, have been questioned by the CBI so far. Various documents from Bharti Airtel and Vodafone offices were also seized by the officials. A spokesman from Bharti Airtel clarified that the entire spectrum allotted to them from time to time has been strictly according to the government policy.

Media is rife with speculations that politics are playing a crucial role in bringing up this issue as it dates back to the period when Bharatiya Janata Party (BJP) was in power. Opposition parties constantly blame the current administration?for its involvement in corruption scandals. BJP?s spokesperson claimed the searches were carried out to deflect scrutiny from government?s own corruption scandals and issues are raised only to divert attention.

Vodafone officials insist they are fully co-operating with Indian authorities and are providing full information. The British telecom giant says the investigation surrounds the pre-acquisition time period?when Hutchison Whampoa operated with its headquarters based in the Cayman Islands.


Court battle between Vodafone and the Indian government is already taking place in which the telecom operator is accused of involvement in an ?artificial tax avoidance scheme?. The company is also accused of owing $2.5bn unpaid tax since its 2007 acquisition of Hutchison Essar. Vodafone claims the tax bill has been applied retrospectively, and that it should not have been taxed because the deal was done overseas.

The dispute with the government and tough competition are frustrating Vodafone’s dreams of getting returns on a $18.53bn investment made during the last few years. CBI told local press that executives of both Bharti Airtel and Vodafone will be questioned in upcoming days as the inquiry progresses.

Sources:?The Guardian,?Reuters,?The Telegraph

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