Vodafone chides India on taxes and red tape

India's battered telecoms sector risks missing a "huge opportunity" to develop next-generation broadband services on account of heavy-handed regulation and slow-moving political reforms from Prime Minister Narendra Modi's government, warns the outgoing chief executive of Vodafone in the country.

The stark comments make Marten Pieters, who leaves his post at the UK-based telecoms group this month, one of the most prominent foreign executives to complain about limited progress improving India's business environment under Mr Modi, who reaches his first anniversary in office next month.

Vodafone is India's second-largest telecoms company by revenue, and one of the country's largest foreign investors, having spent more than $12bn developing its business since launching there in 2007.

The group has endured a slew of problems, however, from a highly publicised $2.6bn tax dispute to frequent battles over what it complains are inadequate and excessively expensive supplies of telecoms spectrum - most recently when it spent a further $4bn in India's most recent auctions last month.

India's issuance of spectrum in "bit and pieces" has driven up prices and let telecoms groups with roughly $55bn in net debts, Mr Pieters said in an interview.

"The government has been very focused over the last few years to tap this industry as a milk cow," said the plain-spoken Dutch executive, describing the sector as being in a "fundamentally worse" condition than when he took up his role as chief executive officer in 2009.

These debts now mean operators are unable to roll out services to rural areas or to invest in new broadband infrastructure, hurting telecoms operators as well as companies in fast-growing sectors like ecommerce.

"We have a huge broadband penetration problem in this country," Mr Pieters said. "We are worse than Kenya, we are worse than lots of other countries which are supposed to be much less developed than India."

"There is such a huge opportunity to build...services that would help development, both economic but also social development," he added. "But by driving the prices up...you create a debt overloaded industry."

Mr Pieters said Vodafone had seen minor improvements in some areas, citing government efforts to put regulatory applications online and New Delhi's decision not to appeal against a recent tax victory for the UK group.

But he said conditions on the ground had yet to improve with telecoms companies still facing excessive taxes and charges, which saw Vodafone pay as "nearly 30 per cent of gross revenues" to the government.

"In general there is too much bureaucracy for the wrong reasons," he said. "Tax collection has been extremely aggressive, and we have not seen much change there yet."

Nevertheless, Mr Pieters said Vodafone remained committed to investment in India, and suggested the market would become at least its second-largest by revenue, up from fourth behind Germany, Britain and Italy currently.

Vodafone would also begin rolling out super-fast 4G telecoms services later this year, he said, although its focus would be on expanding take-up of more basic data services, where "massive" opportunities remained for growth.

"India has a huge potential [for Vodafone], not only to become number 2, but perhaps we can even see how it will develop further," he said. "We just bought spectrum for 20 years. This company will be around for 20 years, and a lot can happen for 20 years."

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