When discussing our Telecom Regulatory Environment (TRE) indicator, we first introduce the concept of regulatory risk. I emphasize that it is not limited to the regulatory agency’s actions, but to all government actions that have a bearing on the operation of the company. The list of woes afflicting Vodafone in India is illuminating.
“The combination of the capital gains tax, uncertain regulation and the very tough competitive environment has caused investors to say it wasn’t great timing” to do the deal, said Robert Grindle, an analyst with Deutsche Bank in London.
Still, he said, “India is one of the fastest growing assets in Vodafone’s footprint, and without the contribution from India the company would have much lower top line growth than it does.”
Vodafone’s total revenue, excluding asset sales, will grow about 2.4 percent this quarter, Mr. Grindle estimates. Without the India business, growth would be just 1.3 percent, he said.
Vittorio Colao, Vodafone’s chief executive, alternates between enthusiasm and frustration when discussing India. The country’s “communicative, talkative society is the ideal ground for a communications company,” he said in a telephone interview.
At the same time, he said, “in the Indian regulatory system sometimes there is a tendency to see the telecom sector as a lemon to be squeezed.”