After tax case win, Vodafone looks at NTP before listing

An indication to this effect was given by its global CEO Vittorio Colao when he told Reuters at the World Economic Forum in Davos: ?Clearly, the tax case was one of the elements, but of course, the new telecom policy is going to be another very important element.?

?Everything that goes in the direction of stability of law and certainty of law is positive as we are an investment-led sector. Therefore, we need to have long-term visibility and stability of conditions to tell our shareholders and prospective shareholders what we are going to do. Stability for the future, ability to forecast what is happening and stability of the regulatory framework are extremely important. Friendliness is very important,? Colao added.

The Supreme Court last week overturned a previous Bombay High Court judgment that went in favour of the tax department, saying the 2007 Vodafone-Hutchison deal which created Vodafone-Essar in India was between two non-residents and hence out of the jurisdiction of Indian tax authorities.

Colao?s statement assumes significance because though the tax issue was seen as a major impediment for the company?s expansion in the country where operators? margins have been squeezed in recent times, regulatory uncertainty in the last three to four years too has emerged as a major concern for investors in the telecom sector.

Most analysts concur that regulatory uncertainty is the single biggest risk factor for mobile operators in India.

Vodafone, India?s third-largest mobile firm by subscribers and second-largest by revenues, along with other operators like Bharti Airtel and Idea Cellular is looking at the NTP to bring about more consolidation in the telecom sector, which is overcrowded with 12-13 players per circle. The result is cut-throat pricing, leading to poor margins for most stronger operators. All of them have been witnessing falling average revenue per user (Arpu) and minutes of usage as saturation sets in on urban areas and rural customers take out connections but don?t talk much. The quantum of 2G spectrum allocated is below global standards and chokes networks.

The biggest regulatory uncertainty for operators like Vodafone currently is with regard to a one-time payment for spectrum held by them beyond 6.2 MHz. Telecom Commission, the highest telecom policy-making body has decided that operators like Vodafone, Bharti and Idea who hold excess spectrum must pay a one-time fee, which will be either the Trai-determined 2G rates or the 3G auction rates, whichever is higher per circle.

Further, this would be on a retrospective basis, which means from 2002 when the spectrum was allocated.

Since the government now plans to charge for spectrum beyond 4.4 MHz, operators like Vodafone will have to additionally pay for the 4.4-6.2 MHz slab also for the remaining tenure of their licences. Here, the rates will be determined by auctions but in the interim, they must pay either the Trai-determined 2G rates or 3G, whichever is higher. If the auction prices turn out to be lower, the government will refund them the extra money.

Vodafone?s india CEO Marten Peiters was also part of the high-level delegation of telecom promoter/CEOs who met the telecom minister Kapil Sibal on Tuesday to express concern on all these issues.