Vodafone India service revenue grows 17% in Q1

The head of Vodafone Group has warned that it and other investors would lose confidence in India should the pending tax case in India go against it.

Speaking as the company released its first quarter results, the Chief Executive, Mr Vittorio Colao, said he was confident would win the case. “We are convinced and advised that no tax is due…we are confident in the judicial system,” he said.

$2.5-b tax case

However, when pressed about whether the company's attitude towards India could change should the $2.5-billion tax notice case, currently in the Supreme Court, go against them, he admitted that was the case. “Of course, it would make you more cautious,” he said. “Unpredictable tax decisions and the application of rules that had not been used in decades don't increase, for sure, the confidence of investors, it's a very important thing for India to get right,” he added.

However, he reiterated the company's commitment in India. “It's an attractive market, with more consolidation and more price stability. It would be a very nice market to stay in,” he said, adding that they would like to put the tax dispute and clarification of the regulatory framework behind them so they could start talking about ‘business, customers and technology'.

The company said it expected the Supreme Court to hear the company's appeal over the withholding taxes on the 2007 Hutchison acquisition in the third quarter of 2011

Quarterly earnings

It came as Vodafone Group reported a 1.5 per cent rise in organic revenues for the first quarter ended June 30, driven largely by non-European markets. Service revenue in India grew by 16.8 per cent, while Turkey grew by 32.1 per cent. Weakness in South Europe continued, with Spain falling 9.9 per cent, and Italy 1.5 per cent.

Mr Colao said the company's priorities were to improve performance in those weaker markets, and focus on growth in both data services and emerging markets.

The sharp rise in India was driven by a 29.8 per cent increase in Vodafone's customer base, and a 70 per cent increase in demand for data, the company said. Prices for voice services – an issue the company had previously warned about – also began to stabilise, Vodafone said, as companies made promotional offers rather than just lowering prices.

In July, Vodafone announced the purchase of the 33 per cent stake in Vodafone Essar owned by Essar for around $5.5 billion.

On Friday, the company said $4.2 billion of this had already been settled, for the 22 per cent stake, with a payment of £1.2 billion at the start of June, and £1.4 billion at the start of July, and a $0.9 billion withholding tax.

The company said that while both firms continued to believe that no tax was due on this transfer, it was viewed as prudent to pay withholding tax on a without prejudice basis. A final payment for the remaining 11 per cent will be made on February 15 next year.

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