Vodafone’s £2.3 billion impairment charge on its Indian operation is another illustration of how these high-growth regions come with a sting in the tail. And Vodafone isn’t the only victim.
In the telecommunications segment alone, there are many examples of how chasing customer growth can come unstuck in emerging markets.
- European Pressphoto Agency
- A Vodafone store in central London.
Spain’s Telefonica SA, feeling the pinch at home from the economic slump, faces significant issues in Venezuela. In January, it said it would have to wipe €1.81 billion from its assets in the country after the government devalued its currency, the bolivar, while Venezuela’s hyperinflationary economy also slashed €548 million from its 2009 net profit.
Like Vodafone in India, Telefonica also faces stiffening competition in its key growth market of Brazil. France’s Vivendi recently entered the market through its acquisition of GVT.
Perhaps in a sign of desperation, Telefonica last week bid $7.3 billion to grab control of Brazil’s largest wireless carrier, Vivo Participacoes, from its joint venture partner Portugal Telecom. PT rejected the bid and Monday Portugal’s prime minister said it was a strategic asset.
Norway’s Telenor wanted a slice of high growth markets in the Former Soviet Union — what it got was years of fighting and legal wrangling with partner Alfa Group, in particular over Ukrainian operator Kyivstar. The final solution appeared to be a $22 billion tie-up between Kyivstar and Russian mobile operator Vimpelcom, but in April the Ukrainian antitrust authority said it had suspended its earlier approval of the deal on concerns over market share and use of mobile spectrum.
In Egypt, France Telecom endured a long-running and complex legal battle with Naguib Sawiris’s Orascom over their joint ownership of local operator Mobinil that was only resolved in April following international arbitration.
Now even Orascom itself is in a bind. The Algerian government has reportedly said it wants to buy out Orascom’s local operator, Djezzy, having also slapped a $250 million tax claim on the unit, which contributes the majority of Orascom’s revenue. That in turn appears to block a potential deal in which South Africa’s MTN would look to acquire Djezzy and some other Orascom assets. Negotiations between the Algerian government, Djezzy and Orascom have yet to evolve into a meaningful solution, after Algiers said it would appropriate Djezzy’s entire capital to prevent a sale to “any foreign party.”
In emerging markets legal and regulatory risks abound even as competition intensifies. Caveat emptor.