vodafone , vodafone report, project on vodafone, service operation management

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Vodafone Group plc is a British multinational telecommunications company headquartered in London and with its registered office in Newbury, Berkshire. It is the world's second largest mobile telecommunications company measured by both subscribers and 2013 revenues (behind China Mobile), and had 434 million subscribers as of 31 March 2014.

Vodafone owns and operates networks in 26 countries and has partner networks in over 50 additional countries. Its Vodafone Global Enterprise division provides telecommunications and IT services to corporate clients in 150 countries.

Vodafone has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalisation of approximately £89.1 billion as of 6 July 2012, the third-largest of any company listed on the London Stock Exchange.It has a secondary listing on NASDAQ.

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vodafone , vodafone report, project on vodafone, service operation management

  1. 1. Service Operations Management Project On VODAFONE Prepared By:- Pragya Prgyaratan1@gmail.com +91-9716225449 Service Operations Management Project On VODAFONE Prepared By:- Pragya Prgyaratan1@gmail.com +91-9716225449 Service Operations Management Project On VODAFONE Prepared By:- Pragya Prgyaratan1@gmail.com +91-9716225449
  2. 2. TABLE OF CONTENTS PART-1 Introduction to the Company & Industry Research Design & Methodology Company’s Vision & Mission PART-2 External analysis Industry/Competitor analysis SWOT/TOWS PART-3 Company analysis on the basis of key performance indicators Strategic options/alternatives Strategic & Financial Objectives Recommended Organizational & Business Strategies PART-4 Vodafone-Hutchison tax case What’s really at stake in the Vodafone tax case The story so far Vodafone wins $490 million tax dispute in Bombay High Court PART-5 Financial projections & overall evaluation of strategies Monitoring & control
  3. 3. PART-6 Vodafone customer base Impact of Mobile number portability (MNP) on Vodafone Telecom subscriber base edges past 915 million; Vodafone key gainer BTS accumulated down time Board of Directors Biographies REFERENCES
  4. 4. PART-1 1.1 Introduction Of Indian Telecom Industry The Indian telecom sector has seen an exponential expansion in the past few years with tele density increasing from 10% in year 2004 to 74% in year 2012. India at present has close to 900 million mobile users with 8 million subscriber additions per month. It has been observed that tele density is lower in rural areas than in urban areas. Areas with low tele density might offer potential for future growth. There are approx 650,000 telecom towers, 60% of which are in rural areas. The telecom on rural India is a playing a significant role for visible participation of rural India in main stream socio-economic growth. The majority of India’s population is in rural areas almost two-third, however with tele-density of 13%. With saturation of urban markets, rural India poses a huge opportunity to telecom operators. Setting up a telecom infrastructure in rural areas has its own challenges. The big challenges for rural telecom network are to maintain network uptime due to regular power cuts, power problems and equipment maintenance. Instantaneous solution is running the base station sites with Diesel Generator backup power adds high cost to the operations. Another long term solutions of these might be using of alternative power like solar power, wind power. At the same time, telecom companies needs latest equipments that consume less power. The growth in mobile networks over the next few years will come from remote parts of the India, where access to electric grids isn't always guaranteed. The service providers are under tremendous pressure to deliver the solutions in efficient manner and make availability of networks. To overcome the electric power grid supply problems, the widely deployed solution is base stations equipped with diesel-powered generators. 1.2 Introduction to the Company Vodafone India Limited, formerly Vodafone Essar Limited, is the second largest mobile network operator in India after Airtel by subscriber base. It is based in Mumbai, Maharashtra. It has approximately 160 million customers as of December 2013. It offers both prepaid and postpaid GSM cellular phone coverage throughout India with good presence in the metros.
  5. 5. Vodafone India provides 2.75G services based on 900 MHz and 1800 MHz digital GSM technology. Vodafone India launched 3Gservices in the country in the January–March quarter of 2011 and plans to spend up to $500 million within two years on its 3G networks. Vodafone added maximum subscribers in July 2014, with 13.6 lakh new users joining its network to take its base to 17.12 crore. Vodafone is the second largest player in telecom operator in India after Airtel, with a market share of 22.95%. Vodafone India Type Private Industry Telecommunications Predecessors Hutchison Essar Limited Headquarters Peninsula Corporate Park, Ganpatrao Kadam Marg,Lower Parel, Mumbai,Maharashtra, India Services Mobile telephony Wireless broadband Parent Vodafone Group Website www.vodafone.in History of Vodafone Max Touch, Orange and Hutch (1992-2007) Hutchison Max Telecom Ltd. (HMTL), a joint venture between Hutchison Whampoa and the Max Group, was established on 21 February 1992.The licence to operate in Mumbai (then
  6. 6. Bombay) circle was awarded to Hutchison Max by the Department of Telecommunications(DoT) in November 1994. The cellular service branded "Max Touch" was launched the same year. Switching and other related equipment were provided by Ericsson and the network was designed, engineered and set up by Motorola. Hutchison Max entered into the Delhi telecom circle in December 1999, the Kolkata circle in July 2000 and the Gujarat circle in September 2000. Licences for these circles had initially been awarded by the DoT in 1994, 1997 and 1995 respectively. Between 1992 and 2006, Hutchison acquired interests in all 23 mobile telecom circles of India. Vodafone purchases Essar's stake In July 2011, Vodafone Group agreed terms for the buy-out of its partner Essar from its Indian mobile phone business. The UK firm paid $5.46 billion to its Indian counterpart to take Essar out of its 33% stake in the Indian subsidiary. It will leave Vodafone owning 74% of the Indian business, while the other 26% will be owned by Indian investors, in compliance with Indian law.On 11 February 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on 8 May 2007. In April 2014, India based Piramal Group sold its 11% Stake in Vodafone India to Prime Metals, an indirect subsidiary of Vodafone Group.
  7. 7. Vodafone India subscriber base statistics as on January, 2013. 1.2 Research Design & Methodology Research is one systematic activity that is undertaken by scholars, to help in widening our knowledge base in all fields of education. Research is undertaken in both social sciences as well as science subjects such as physics and biology. There are many different types of researches such as descriptive, exploratory, explanatory, and evaluation research. Exploratory research is challenging as it tackles vaguely defined hypothesis and tries to find answers to questions. This kind of research is social in nature and requires some preliminary work in the direction of the research. Exploratory research is treated as the purpose of the research saying this kind of research proves to be useful when the hypothesis has yet not been formed or developed. There are certain basic premises that need to be tested at the start of an 0 2000000 4000000 6000000 8000000 10000000 12000000 14000000 16000000 18000000 Gujrat UP Maharashtra WestBengal Tamilnadu Rajasthan AndhraPradesh Delhi Goa Karnataka Bihar Kolkata Punjab Haryana MP chennai odisha Assam jammu&kashmir Himachalpradesh Mumbai No.Of Subscribers No.Of Subscribers
  8. 8. exploratory research. With the help of these hypotheses, the researcher hopes to arrive at more generalizations. Type of Data collection: 1) Secondary data collection through online sites, research papers, white papers, articles, journals, previous research on similar topics etc. 1.3 Company’s Vision & Mission Vision Vodafone can help to transform societies by bringing innovative products and services to our 404 million customers, 68% of whom live in emerging markets. Mobile technology is already a vital tool in people’s lives and our ambition is for Vodafone’s mobile services to further improve people’s livelihoods and quality of life. At the same time, we aim to help consumers, governments and businesses tackle some of the significant challenges they face – from food shortages and ageing populations, to lack of access to communications, healthcare and financial services. Our business focus on emerging markets, enterprise, data and new services gives us the ability to achieve our ambition to contribute to global development in this way, while continuing to grow our business at the same time, by developing commercially viable, scalable services that support sustainable development. Mission Statement We will enhance value for our stakeholders and contribute to society by providing customers with innovative, affordable and customer friendly communication services. Through excellence in our services we aspire to be the most respected and successful telecommunications company in India. We see our customers, employees, shareholders and the community we operate in as our most important stakeholders.  Customers We enhance value through delivering affordable, reliable and customized communication services which are simple to use, enjoyable, seamless and secure. Our customers respect us because:- • We understand their needs • We create innovative services
  9. 9. • We consistently deliver on what we promise • We are transparent and trustworthy in our interactions • We provide a secure and reliable network • We offer affordable products and services We define success as delighted customers who recommend us to others.  Employees We enhance value through providing enriching careers and long term growth opportunities in a fair and collaborative work environment. Our employees respect us because • We provide a healthy and safe work place • We encourage mutual respect, trust and appreciation • We promote diversity and treat them inclusively • We conduct ourselves with transparency and integrity • We pursue speed and simplicity in all that we do • We recognise and admire accomplishments We define success as happy employees with great careers.  Shareholders We enhance value through growing the company’s revenue and profitability while creating sustainable free cash flow through efficient resource utilisation and effective risk management. Our shareholders respect us because • We follow ethical business practices • We communicate in a fair and transparent way • We enhance company’s reputation and brand value • We do everything to protect our shareholders interest We define success as creating sustainable value by delivering great shareholder return.
  10. 10.  Our Community(Business partners, Authorities, Influencers and Local Communities) We contribute to the society by supporting authorities in mobilizing social change and achieving their economic goals, creating value for our business partners and contributing to the social & economic development of local Communities. Our community respects us because • We act responsible towards our environment • We create community connect • We stimulate business and economic growth • We have high standards of corporate governance • We conduct our business with transparency integrity and fairness We define success as being the most respected telecom company in India
  11. 11. PART-2 2.1The external environmental analysis The external environments significantly have an impact on the company‟s strategic management model. According to Pearce and Robinson (2009), the external environment “can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment”. These factors Vodafone Group is facing are discussed in this part. Remote environment  Economic Factors Most companies have recently been confronted with slower growth than ever in the volatile and rapidly changing global markets. Vodafone Group is not the exception and it hasn‟t been sustainably growing in some markets. International Monetary Fund (2010) reported that European market growth is projected only at 1.0% and 1.3% in 2010 and 2011 respectively but Vodafone Group has heavily relied on slower growth and saturated European market due to extremely higher mobile subscriber penetration with more than 150% in some countries. Its revenues from the market captured 67.3% of its total revenues in 2009 but ARPU (average revenue per user) in UK, Greece, Netherlands, Spain, Italy, Germany, and Portugal where the company is operating has been slightly decreasing. In contrast, IMF (2010) reported that Indian market growth is projected at 9.4% and 8.4% in 2010 and 2011 respectively. Vodafone Group has improved performance in emerging markets in 2009 and executing in emerging markets is one of the four main objectives. Service revenues in the market grew by 14.7% in 2009, and Indian mobile market, the second-largest market around the world after China, has been perceived as its key market.  Political factors Political factors are also a major consideration for Vodafone Group on formulating and implementing its strategies in accordance with each country specific legal, regulatory and tax environments. The company also has to comply with an extensive range of requirements that regulate and supervise the licensing and the allocation of frequency spectrum. Vodafone (2010a) stated “decision by regulators regarding the granting, amendment or renewal of licenses, to us or to third parties, could adversely affect our future operations” (p. 38). For instance, EU recently introduced a multi-year spectrum policy program. India made regulations for the implementation of mobile number portability in 2009.  Technological Factors Telecommunication operator‟s ability to adapt the advanced technologies has a great impact on innovative and differentiated products and services in response to the rapidly changing customer needs and market environments. Saxtoft (2008) argued that “competitive advantages in the future convergent communications industry will be based on the organizational ability of communications service providers to utilize the specific mix of network data, services data and customer data available to each of the players in the market” (p.71). With its ability to continuously adapt new ICT, the company has created value-added services like Vodafone 360 and Cloud Computing services.
  12. 12. Industry environment Most telecommunications operators in developed markets have been confronted with a fierce competition and declining revenues, and understating of competitive forces is greatly crucial to thrive and survive. Michael Porter‟s five competitive forces are discussed in this section. Vodafone Group hasn‟t experienced in the extremely steep declines in revenues while operating in both developed and emerging markets and thus diversifying risks.  Threat of Entry Telecommunications industry is very capital-intensive business with a huge amount of capital to acquire and maintain its network infrastructure and technologies, and create new products and services. Although the huge capital requirements traditionally represents a more significant entry barrier to new entrants than some other industries, recent MVNO (mobile virtual network operators) business model lowers the barrier and small companies with differentiated products and services has been identified as new entrants. In addition, while telecommunications operators have made significant efforts to redefine their value chains to create new value-added services, Google, Amazon and other online companies have attempted to redefine industry boundaries. These companies are perceived as new competitors in telecommunications industry.  Supplier Power Vodafone Group‟s key suppliers are handset manufacturers like Samsung, Nokia and Motorola, and network equipment manufacturers like Ericsson, Alcatel-Lucent, and Nokia Siemens Networks. Those suppliers‟ bargaining powers have weakened due to lack of technical advantages and new Chinese entrants that extremely pursue cost leadership. In contrast, Vodafone Group has enhanced its bargaining power to key suppliers while focusing on „One Vodafone‟ program to integrate business activities to leverage economies of scale and scope.  Buyer Power While Vodafone Group has been confronted with a fierce competition globally, its customers tend to be more price-sensitive in both developed and emerging markets. The company has still relied on European markets with significantly higher mobile subscriber penetration, and ARPU in all Vodafone operating countries in the markets have been decreasing. In Indian mobile market as its key market, ARPU continued to decline despite subscription growth.  Threat of Substitutes Vodafone Group has continuously diversified its product and service portfolio including traditional mobile voice and messaging, data, fixed line solution and other services such as value-added services to meet its customers‟ total communications needs. Its mobile voice and messaging services, data, fixed line solutions, and other services accounted for 67%, 11%, 10%, 8% and 4% of total revenues respectively in 2009, and therefore substitutes for its mobile voice and messaging services have a significant impact on its business. Although mobile voice services have overtaken traditional fixed voice services, especially in emerging markets, VoIP (Voice over IP) services are identified as its substitutes in addition to fixed voice services globally. Myers expected (2010) that VoIP product revenue will climb to $578 million in 2Q2011, a 2.4% increase over 2Q2010. While there are still concerns on the reliability and quality over IP
  13. 13. networks, more broadband customers become aware of the benefits of VoIP to “enjoy the flexibility and cost-savings by using their existing broadband connection for voice services (Myers, 2010, p. 37). Vodafone Group hasn‟t still ultimately embraced VoIP services but growth of VoIP services has a significant impact on a decrease in its voice ARPU. Vodafone Group has focused not on cost leadership to directly compete with VoIP services but on diversifying its product and service portfolio and launching new value-added services. Its data services are mainly used to connect the Internet and its substitutes are broadband services and fixed Internet services. Vodafone has embarked on fixed broadband service especially in developed markets to offer fixed-mobile converged services to differentiate its services from other fixed or mobile operators. In developing markets, fixed broadband services and Internet services are not identified as substitutes for mobile Internet services any more since mobile Internet services have overtaken fixed broadband services. Its fixed broadband services are identified as complementary services to deliver fixed-mobile converged services. The company has generally started with mobile services and then added fixed services in all market the company has entered into. According to Marvrakis and Saddi (2009), “the previously pure mobile operator is now following a total communications strategy which includes mobile (cellular), broadband (fixed) and wireless; it has been offering combined services, with fixed, mobile and broadband services under a single bill”.  Rivalry Vodafone Group is operating its business in more than 70 countries and the general competitive landscape differs in developed and emerging markets. However, the switching cost is low in both markets and the differentiation strategy is essential for the company to keep its customers from rivals. European market, the largest markets for Vodafone Group, has been saturated due to extremely higher mobile subscriber penetration. Value-added services are identified as key differentiators and the company has launched Vodafone 360, and Cloud computing services in the market. In contrast, Indian is one of the highest growth mobile markets globally and the company accounted for approximately 30% of its total number of subscribers globally. While the mobile subscriber penetration in Indian markets hasn‟t reached 50%, Vodafone Group and other mobile communications companies are facing extremely fierce price competition due to lack of differentiated services. Operating environment  Competitive Position The company‟s geographic footprint in more than 70 countries affords its huge economies of scale and scope and ensures that Vodafone Group has diversified revenue base to cope with recent economical recession “as its emerging market operations helped cushion the poor performance in Europe and Turkey”. The Vodafone brand is perceived as one of the most recognizable global telecommunications brands and the company has capitalized on the brand recognition to enter into new markets. The company is also a market leader in developing products and services. It hasn‟t implemented cost leadership but differentiation strategy while leveraging its strong brand recognition and diversified geographic footprint. However, the company has faced fiercer competition across most of global markets than ever. Its major multi- national competitors are France Telecom‟s Orange, Deutsche Telekom‟s T-Mobile, and Telefonica‟s O2. The company also has to compete with domestic mobile operators like TMN in
  14. 14. Portugal and KPN in Netherlands in European market. Its performance in European market is worse than its rivals especially in Germany, Italy and Spain. The company is also facing fierce price competition in Indian market. It presently comes third behind Bharti Airtel and Reliance.  Customer Profiles While diversifying its markets and product and service portfolio, it has expended its customer base globally and served its products and services to both consumers and enterprises. Traditional voice and messing services have been already commoditized globally and they are affordable enough for most people living in the countries where Vodafone Groups is operating.  Human Resources Vodafone Group employs around 85,000 people and its employees are identified as a source of competitive advantages to improve existing customer relationships locally. Vodafone Group (2010a) stated that “we rely on our people to maintain and build on our success and to deliver excellent service to our customers”, and “we aim to attract, develop and retain the best people and to realize their full potential” (p .22). The Vodafone Way program can help all employees align with a common set of values and behaviors in order to be an admired, innovation and customer-focused company operating with speed, simplicity and trust. Employee turnover rate has been stable at 13%, 13%, and 15.2% in 2010, 2009 and 2008 respectively. 2.2 Industry/Competitor analysis  Positioning Strategy:- Vodafone  Vodafone has veered towards warmth and emotions.  Vodafone used the powerful visual imagery of a dog. Airtel  Airtel is focused on functionally and efficiency.  Airtel choose to use music, which is not nearly as effective.  Target Audience:- Vodafone  They are targeting middle class person as their target audience.  It can be justified by their product like chota recharge.
  15. 15. Airtel  A group or class of persons enjoying superior intellectual or social or economic status  Up market professionals 2.3 Segment Target Positioning (STP) & SWOT Analysis STP Analysis Segment Upper class and above; Lifestyle Target Group Corporates; student campus plans Positioning Inviting, cheerful and humorous SWOT Analysis Strength 1.One of the most popular cellular service provider in India 2.One of the largest Telecom operator in the world 3.Only Indian operator, with VSNL, that has an international submarine cable 4.High brand visibility 5.Strong advertising with ZooZoo concept 6.Tieup with international sports like FormulaOne Weakness 1.Price competition from BSNL and MTNL 2.Untapped Rural Market Opportunity 1.Fast expanding cellular market 2.Latest and low cost technology 3.Untapped rural market Threats 1.New entrant's low price offering 2. Saturation point in Basic telephony service 3.Mobile Number Portability Competition Competitors 1.Airtel 2.Idea 3.Reliance 4.Tata Docomo 5.Aircel 6.MTNL 7.BSNL 8.Uninor 9.Tata Indicom 10.Virgin
  16. 16. PART-3 3.1 Company analysis on the basis of key performance indicators Key Performance Indicators (KPIs) are a set of metrics that regularly assess the health of each business activity against the strategic and operational objectives. KPIs represent “a set of measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization”. The actual KPI values are compared to the target KPI values in the balanced scorecard on a regular basis while KPIs have changed in response to the business environment changes. The better the actual KPIs are compared to the target KPIs, the higher the scores in most cases. KPIs provide an objective feedback and facilitate the objective setting for future performance. KPIs can be divided into the strategic, tactical, and operational levels. Strategic KPIs can be directly translated into tactical KPIs and subsequently into operational KPIs, and they are logically tied with each other through a set of cascading dashboards. “Dashboards can be configured and personalized to provide strategic, operational and tactical views of the organization, processes, services, and activities” in line with each decision making level. According to Rasmussen, Bansal and Chen (2009), there are ten steps to use plan a KPI design project:  Build the team.  Clarify and agree to the organization‟s strategies and tactics.  Decide on dashboard categories and prioritize.  Choose organizational deployment.  Create a list of KPIs and metrics for each strategic objective.  Test KPIs against framework.  Select top KPIs.  Choose presentation method and interactivity for each KPI.  Document decisions and get sign-off.  Design architecture and dashboards based on document. Balanced Scorecard methodology in Vodafone Group Vodafone Group has already implemented the balanced scorecard methodology that is not only focuses on the financial perspective but also customer, business process, and learning and growth perspectives. The approach has helped Vodafone Group create additional values. According to EFM Software (2009), there are several reasons why Vodafone Group decided to use the balanced scorecard and eventually developed eighty and even up to one hundred indicators:  There was a need for operational performance measurement and feedback.
  17. 17.  The increasing complexity of systems and organization as a consequence of its rapid growth led to decreasing coherence between different management reports.  The business dynamics cause continuously changing external factors which in turn influence the decision making. In the interview conducted by Pointon (2005), the former CEO at Vodafone Australia, Grahame Maher mentioned the values of the balanced scorecard: As for the BSC the beauty of that theory is that everything in the business should be measured and not just the accepted financial measures. The BSC has a natural flow which says the flow is PEOPLE then PROCESS then CUSTOMER and then finally FINANCIAL measures as they are just outcomes of the other stuffs. This is completely consistent with the Values based approach which puts people as the most important focus. In another the interview conducted by Supply Chain Standard (2006), the head of services at Vodafone Global Supply Chain explained the values of the balanced scorecard as “in terms of building the community to maximize performance, we are well down the track on structuring an integrated SCM organization and are to implement a balanced scorecard reflecting not just savings but the total value add to Vodafone of the SCM function”. In addition to internal performance management objective, Vodafone Group has externally reported some of its KPIs in its interim management statement on a regular basis. Actual and target values of EBITDA margins, service revenue growth, free cash flow, net debt, adjusted operating profit, and data traffic growth are included in the statement. Those four strategies are now decomposed into strategic objectives, and performance measures are developed for each of the strategic objectives, as shown in Figure. In the annual report for the year ended 31 March 2010, Vodafone reported the a number of KPIs used by The Board and the Executive Committee “to monitor Group and regional performance against budgets and forecasts as well as to measure progress against our strategic objectives” (Vodafone, 2010a, p. 24). Those KPIs are categorized as „VF defined‟ in Figure. To completely align with each of strategic objectives, a total of five KPIs are relatively proposed, and categorized a Proposed‟ in Figure .
  18. 18. KPI for Vodafone Group  Customer Perspective The customer delight index, churn rate, and revenues from emerging markets, and the number of proportionate mobile subscribers are developed in line with each of strategic objectives in the customer perspective. Mobile technologies have evolved and its customers use their mobile phones not only to call but also access the internet, watch television, play music and take pictures. Vodafone Groups has focused on customer value enhancement to maintain their loyalty and trust. According to Vodafone (2010b), the Customer Delight Index measures the levels of satisfaction and dissatisfaction: Our Customer Delight Index (CDI) measures levels of satisfaction and dissatisfaction among consumer and business customers. It helps us to monitor our progress against our goal to ‘delight our customers’. The CDI results are reviewed quarterly at board level to identify priorities for improvement. In addition, a Customer Experience Committee meets monthly to review issues affecting customer satisfaction and put action plans in place.  Financial Perspective EBITDA margin, free cash flow, and return on common equity („ROE‟) are developed in accordance with each of strategic objectives in the financial perspective. A robust network infrastructure is a source of competitive advantages for Vodafone Group but it generally reports
  19. 19. large losses due to hugely spending capital expenditure to construct the infrastructure. EBITDA margin enables to analyze the profitability of core business operations while deducting the huge amount of interest, taxes, and capital expenditures. Free cash flow generation is a critical source of Vodafone Group‟s growth while establishing its entities through the acquisition, joint-venture, and strategic alliance globally. In addition, free cash flow can support higher dividends and in turn contribute to maximizing shareholder‟s values. ROE is the most important bottom line accounting ratio that represents the actual return earned by shareholders and is the best measure to directly assess its actual performance against the strategic objectives „drive shareholder return‟.  Learning and Growth Perspective ARPU, data revenue, fixed revenue, and the number of enterprise mobile voice connections are developed in accordance with each of strategic objectives in the learning and growth perspective. Most of those measures are typically categorized into the financial perspective. However, not tactical and operations KPIs but strategic KPIs are analyzed in this research and therefore those measures are considered as a reflection of Vodafone Group‟s innovation in this research. Vodafone Group hasn‟t implemented the cost leadership strategy to gain a competitive advantages but it relatively focuses on creating and launching new value-added services to increase ARPU. ARPU can be therefore considered as one of the key measures of its innovation. While traditional voice and messaging services has captured more than 75% of its service revenues, data service is targeted as one of three key areas for growth, and therefore the data revenue is a key measure to directly evaluate its growth objective. Vodafone Group has expanded fixed broadband customer base to be a total communications provider. It has only fixed broadband services in its fixed service portfolio, and the broadband is also perceived as one of three key areas for growth. Fixed revenue represents the growth objective and is considered as a key measure. The last one of three key areas for growth is the enterprise services. While the enterprise service revenues are not independently reported in the annual report, the main enterprise service is an enterprise voice service and therefore the number of enterprise mobile voice connections can be considered as a key measure of its growth objective.  Business Processes Perspective The employee turnover rate, annual capital expenditure, and operational efficiency ratio are developed in accordance with each of strategic objectives in the business process perspective. Vodafone stated that “We rely on our people to maintain and build on our success and to deliver excellent service to our customers”, and “we aim to attract, develop and retain the best people and to realize their full potential” (Vodafone, 2010a, p .22). The employee turnover rate is one of
  20. 20. the key measures to evaluate its performance against the strategic objective „maintain high performance benchmark for employee engagement‟. As a part of cost efficiency programs, the two-year working capital reduction program is executed and the working capital itself is the best measure to directly evaluate the actual performance against the targeted working capital. While the £1 billion cost reduction program has already been delivered, Vodafone has extended this program to a further £1 billion cost saving by 2013. £1 billion includes both the capital and operating expenditures and it might be difficult to focus on either capital or operating expenditure. However, the objective of the cost reduction program is to improve its operational efficiency and, the number of subscribers versus the number of own employees‟ ratio can alternatively used. 3.2 Marketing strategy of Vodafone  Vodafone’s strategy is customer focused and product led; the company is continually developing new products and services which utilize the latest technological advances.  To keep its leading edge, Vodafone is continually looking to add value to the services it provides and to the packages it offers to customers.  ZooZoo , the new brand ambassador of Vodafone, has created a furors in the advertising industry.  Vodafone has given birth to the Zoozoo: a special character created specifically to convey a value added service (VAS) offering in each of the newly released commercials.  Vodafone has come with creative advertising campaign for its various plans.  This strategy has captured the imagination of millions. The strategy is a buzz that lives up to the brand image of great creative's and clever marketing.  In the first 10 days of IPL (Indian premier league) it has reached a cumulative of 89 million people. This is a wonderful strategy adopted by Vodafone.This has helped the company to raise not only its profits through sales but has also tremendously increased its brand value. Zoozoos have become so popular that Vodafone has succeeded in its effort of viral or buzz marketing. Their add campaign has gained so much popularity all over the world.
  21. 21. 3.3 Business strategy of Vodafone 3.4 Strategic & Financial Objectives The primary objective of Vodafone as a business entity is profit maximisation. The company has a mission statement that ensures for this objective to be achieved in the best possible manner. Vodafone’s mission statement is “to be the communications leader in an increasingly connected world” (Annual Report, 2010). Accordingly, this mission statement is communicated to all stakeholders of the company, especially to 84,990 employees (Company Description, 2010) of the company, due to the fact that it is employees who are going to contribute the most to the achievement of the mission statement. Vodafone is committed to achieving its aims and objectives through offering innovative and superior services. According to Saplista (2008), Vodafone is not limited to offering basic telecommunications services such as mobile phone calls and text messaging, but also offers such advanced services as:
  22. 22.  Vodafone at Home and Vodafone Office represent integrated mobile and communication services to satisfy household, as well as business needs.  Vodafone Passport allows customers to ‘take their home tariffs abroad’ through roaming services which is possible due to the wide global presence of the company.  Vodafone Live! is integrated communication and multimedia solution offered by the company to be used through mobile phones and notebook computers.  Vodafone 3G offers 3G services that allow customers to transfer and download data in various formats.  Vodafone Mobile Connect data cards and Mobile Applications offer customers the possibility of portable internet. 3.5 Strategic Model for Vodafone The level of competition in each industry, especially in telecommunications industry Vodafone is operating in has become very fierce. The only way to survive and expand in such a competitive environment for Vodafone is to have an efficient strategy that would be the source of competitive edge for the company. Currently Vodafone has no clear strategy. Therefore potential customers are not sure in what ways the company can offer value to them. According to Porter’s generic strategies companies can choose cost leadership and differentiation strategy in narrow and broad scope (Porter, 1985). Vodafone is highly recommended to implement differentiation strategy in a industry-wide scope. Thus, Vodafone should develop products and services with additional features that present value for potential and existing customers, and the company can charge additional extra prices for this additional feature. For instance, in its portable and home broadband services Vodafone can further invest in research and development and achieve increasing the speed of the internet browsing they are offering. This particular strategy is most likely to prove efficient due to the fact that although currently there are many internet providers in UK the speed of internet browsing tends to decrease during specific hours of the day.
  23. 23. Another justification for the suitability of differentiation strategy for Vodafone relates to the fact that due to the current size and financial resources of the company Vodafone can commit to high level of research and development expenses this strategy initially requires. Although Vodafone’s competitors do understand the advantages of differentiation strategy, unlike Vodafone the state of their financial resources do not allow them to adopt differentiation strategy. Information system can be used at each above specified decision-making level in order to give competitive edge to Vodafone manager at that level in particular and to the company itself in general. Curtis and Cobham (2008) define information system as an integrated combination of information technology components and related human efforts that is used to assist in operations and decision making. Information system at each decision-making level at Vodafone should be devised and maintained in a way that it can serve the two following purposes:Firstly, information systems should support the key business functions, and create competitive edge for Vodafone.Secondly, information system should assist in efficient facilitation of Vodafone’s customer relationship management. In order to achieve these objectives the following recommendations should be implemented.  Strategic level management. Information system at strategic level for Vodafone should include all external and internal factors that are going to affect the company. Information of such a nature should be supplied to strategic level managers systematically in order to assist them in decision-making. Moreover, information system intended for Vodafone strategic level management should contain detailed information about potential overseas markets, information regarding the extend of competitor activity as well as information regarding the suitability of Vodafone products and services to today’s competitive standards. Inefficient information system at strategic level management is going to have dramatic negative consequences caused by not being able to respond to changing market conditions, because there was no accurate information about the changing market conditions in the first place.  Tactical level management. Information system for Vodafone managers at tactical level should include breakdown of sales by a region, as well as breakdown of sales by a product or a service. It is important for such type of information to be supplied to tactical level managers on a regular basis. Moreover, information technology should be widely used in order to collect such type of information, because it will make the process faster, as well as cost efficient. Not implementing and maintaining efficient information system for tactical level management will cause huge losses for Vodafone which is going to affect the whole region and damage the image of the company dramatically.
  24. 24.  Operational level management. The scope and range of information system in operational level management is considerably smaller compared to strategic and tactical levels. Nevertheless, it is equally important for operational level management at Vodafone to have a constant supply of information relating to the process of products and services, stock availability, customer credit ratings etc.Again information technology must be widely used in order to process and store information system at operational level management. The negligence of this recommendation may result in loss of revenues caused by the absence of stock in stores, improper pricing and many other ways.Currently Vodafone commands a leading position in the global telecommunications market. However, due to the constantly changing marketplace the company cannot afford to take this position for granted and has to engage in increasing its competitive advantages in many fronts. 3.6Recommended Organizational & Business Strategies  Building a learning organization and a professional intellect Vodafone Group has embraced diverse workforce and offers equal opportunities for all aspects of employment and advancement, regardless of race, nationality, sex, age, marital status, disability, religious or political belief, to understand expectations of its diverse customers around the globe and have required skills and competences to create and launch the innovative and differentiated products and services that Vodafone Group meets its customers‟ requirements. Vodafone Group created a leaner and agile structure with clear accountabilities in 2009 to accommodate rapid growth. Three regions, including Europe, Africa and Central Europe, and Asia Pacific and Middle East, were created and each regional CEO was appointed. Along with the group-wide organizational restructuring efforts, several centralization initiatives have been accelerated, including supply chain, product development, IT and network programs, and terminal procurement. As the result, approximately 1,900 jobs were eliminated but the overall number of employees grew 9% because of rapid growth in emerging markets and business acquisitions. Although organizational structure has been continuously improved in response to market environmental changes, Vodafone Group has been committed to helping all employees reach their full potential through ongoing training and development. “In the 2009 financial year, Vodafone provided an aggregate of 230,000 days of training, an average of three days per employee”, and “this training program was extended to all employees via an online interactive course that has been translated into 11 languages and rolled out to 18 countries”.
  25. 25.  Taking advantage of Customer Relationship Management tools Vodafone Group has developed the group-wide strategy that is associated with its better understanding of the importance of the customer experience to its business success. Delivering value-added products and services that can meet individual customer needs and widen the scope of its relationship with its customers are essential to reshape its competitive environment. Vodafone Group has standardized on Siebel CRM platforms across three geographies to collect, analyze and share customer information across multi-channels, including customer service agents, sales and marketing teams, to gain a 360 degree view of customers, and measure and manage customer satisfaction, customer loyalty, revenue assurance, revenue growth and profitability. Employees in Vodafone Group have access to a centralized repository for customer information in the systems.  Top Line Improvements Vodafone Group has definitely had better understanding of the strategic values of IT to gain and maintain competitive advantages from the viewpoint of both top line and bottom line improvements. To improve top line, general telecommunication operators consider IT as sources of innovative and differentiated products and services that they create and launch globally in a timely manner. Vodafone Group has not used the cheaper price than other competitors to attract new customers and retain existing customers to become the largest or the second largest mobile operator in the most markets the Group has ever entered but it has focused on creating and launching new value-added services that entice new customers. Arun Sarin, the former CEO of Vodafone Group stated. We have rededicated ourselves to delighting our customers because we believe this is the foundation for our continued success. We recognize that every customer interaction provides another opportunity to win loyalty and that‟s why we continue to raise standards on the quality of customer case in our call centers and our stores and the quality of our networks. Key to delighting our customers is our ability to deliver superior voice and data services according to differing customer needs. The choice of right IT at right time is necessary to drive current and future returns and intellectual capital that articulate and structure all the stakeholders‟ values, and Vodafone Group‟ s three key strategic IT initiatives have been sources of competitive advantages to improve top line.  Agility to adapt the advanced technologies Telecommunication operators‟ agility to adapt the advanced technologies has a great impact on innovative and differentiated products and services, including the converged services of network data, services data and customer data available to improve customer experience in response to the changing customer needs and market environment. Saxtoft (2008) argued that “competitive advantages in the future convergent communications industry will be based on the organizational ability of communications service providers to utilize the specific mix of network data, services data and customer data available to each of the players in the market”. Vodafone‟s ability to
  26. 26. adapt new IT continuously ensures that their customers are able to “stay connected to the people and the information that are central to their lives – via voice, text, instant messaging, e-mail, music, communities, news, and applications both social and work related – whenever, wherever” .Vodafone Group thus created Vodafone 360, Vodafone Vorteil, and Cloud Computing services and the Group in turn can greatly improve customer experience, and eventually gain and maintain its competitive advantages. Along with increasing bandwidth demands and a data dominated traffic mix, the ability to optimize its network capacity according to the differentiated products and services has been essential in improving quality of services for these services. Vodafone launched „Vodafone 360‟, a suite of new Internet services for the mobile and PC that gather all of customer‟s friends, communities, entertainment and personal favorites. Vodafone 360 encompass a universal contacts address book „Vodafone People‟ that automatically synchronize all contacts from a customer phone, Facebook, Windows Live Messenger, and Google Talk, and an online content and data management tool. Vodafone 360 brought together many existing Vodafone mobile Internet initiatives under a common and intuitive service umbrella. Vodafone 360 represents the new service standard to take everything back in Vodafone and superimpose proprietary ownership over all service aspects while dispelling the notion that mobile operators are unable to response to the full force of the innovation that Apple iPhone brought to market. This is the first time a mobile operator has created an experience which can compete against the iPhone standard of excellence and superior user interface. Vodafone is now attempting to move into the fixed voice and broadband markets and has either acquired fixed Internet Service Providers in some countries or formed partnerships in the other countries where acquisitions are not feasible or not cost efficient. “The previously pure mobile operator is now following a total communications strategy which includes mobile (cellular), broadband (fixed) and wireless; it has been offering combined services, with fixed, mobile and broadband services under a single bill”. Cloud Computing has become popular in the telecommunications industry all over the world. It is “a large-scale distributed computing paradigm that is driven by economies of scale, in which a pool of abstracted, virtualized, dynamically-scalable, managed computing power, storage, platforms, and services are delivered on demand to external customers over the Internet”, and“ has become the hottest technology in IT” .Vodafone Group announced a strategic partnership with Decho Corporation to deliver a series of „Could Services‟ for both enterprise and consumer markets. The first service to emerge across the Vodafone Group footprint is the „Vodafone PC Backup‟ service that enables customers to save personal data from the PC to a remotely hosted site. They are able to view and share the data from their account through the web browser of their PC while reducing the need to transfer the data from one device to others. None of Vodafone‟s key Tier 1 competitors has launched free PC backup and online storage aggressively with consumer mobile broadband services and Vodafone Group is relatively staking leadership in consumer Cloud Service provision. Emma (2009) argued that “A Vodafone-branded PC backup service promises powerful value-added differentiation for the operator‟s mobile and
  27. 27. fixed broadband portfolio across its key European markers by year-end”. Vodafone Group can continuously maintain its competitive advantages while launching a series of Cloud Services faster than other competitors, in addition to existing PC backup and online storage services.  Optimizing entire value chains and redefining industry Optimizing entire value chains beyond Vodafone Group and its traditional suppliers, and redefining industry are identified as sources of competitive advantages to create and launch innovative and differentiated products and services. The telecommunications industry is confronted with unprecedented challenges in breaking down traditional industry boundaries and redefining industry in response to changing market environment while the Internet companies such as Google, eBay and Yahoo have demonstrated business models that enable third parties to develop new services by combining existing services to increase the value of the traditional and original services. Service providers are no longer limited to the traditional voice and simple data services but are comprised of content, application, and other service providers. To compete against these new service providers, an effective service delivery framework is essential, to deliver and maintain differentiated services beyond traditional boundaries, achieve time to market, and conclude business agreements among all stakeholders.  Group Technology Vodafone Group‟s has driven the Group Technology initiatives that have managed and controlled group-wide projects to orchestrate the move toward significant coordination and identify and disseminate best practices to focus on expansion of service capacity while replicating business models across a number of countries and maintaining cost efficiency. Vodafone Group created two central functions, "Group Marketing (to drive revenue growth), and Group Technology and Business Integration (to drive cost and scale benefits”, and “thy purpose of Group Technology will be to lead the implementation of standardized architecture for business process, information technology and network systems” (Hitt, Ireland and Hoskisson, 2008,). The initiatives have supported the third generation (3G) network rollout, the enhancement and expansion of Vodafone Live service to Germany, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and then UK, and the development of Vodafone Group‟s business offering on a global basis. Vodafone Group has benefited from the effective and efficient Group Technology initiative. First, Vodafone Group is given more strategic option for marketing and sales of its products and services. Second, the time-to-market becomes shorter by consolidating its development resources and sharing the solutions. Finally, cost reduction arises from avoiding multiple development  Bottom Line Improvements On the other hands, Vodafone Group has capitalized on IT capabilities to implement its strategic initiative, „One Vodafone‟ program, which transforms 16 operating companies into a united operation to achieve streamlined cost effective and efficient group. Vodafone Group has
  28. 28. embedded IT sharing, outsourcing, and centralization and consolidation strategies in order to achieve the objectives of the program. Radio access network are shared with the other mobile operator, Orange, IT application development and maintenance are outsourced to IT outsourcing vendors, IBM and EDS, and supply chain management function and European data centers are centralized and consolidated to Vodafone Group.  Using IT initiatives to transform the operator The „One Vodafone‟ program was focused on key initiatives to integrate business activities to leverage economies of scale and scope of Vodafone group to transform the Group into a streamlined, cost-effective and efficient organization while standardizing designs and processes, reducing duplication, centralizing and consolidating certain functions and sharing best practices across operating companies. . The program was targeted at achieving £2.5 billion of annual pre tax operating free cash flow improvements in Vodafone Group‟s controlled mobile business by the end of March 2008. Vodafone Group predominantly embedded IT sharing, outsourcing, and centralization and consolidation strategies to achieve the objectives of One Vodafone program that transform multiple operating companies around the globe in Vodafone Group into a streamlined, cost effective and efficient organization.  Centralized Supply Chain Management A supply chain is a series of activities in which materials move through from initial suppliers to the final customers. In Vodafone Group, handsets, network equipment, marketing and IT services account for the majority of Vodafone‟s operational expenditures. Centralized Group‟s Global Supply Chain Management (GSCM) team has been driving „One SCM‟ to leverage its scale to significantly reduce operational expenditures. One SCM delivers values through robust integration across all Vodafone‟s operating companies to centralize and manage most of the Group‟s relationships with their suppliers. A consistent supplier performance management process has been implemented across the Vodafone Group‟s mobile operations and key suppliers are evaluated in the six areas “covering aspects of financial stability, technological and commercial criteria, delivery and quality management requirements and corporate responsibility”.
  29. 29. PART-4 4.1 Vodafone-Hutchison tax case Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax Department over its purchase of Hutchison Essar Telecom services in April 2007. It was being alleged by the Indian Tax authorities that the transaction involved purchase of assets of an Indian Company, and therefore the transaction, or part thereof was liable to be taxed in India. Vodafone Group Plc. entered India in 2007 through a subsidiary based in the Netherlands, which acquired Hutchison Telecommunications International Ltd’s (HTIL) stake in Hutchison Essar Ltd (HEL)—the joint venture that held and operated telecom licences in India. This Cayman Islands transaction, along with several related agreements, gave Vodafone control over 67% of HEL and extinguished Hong Kong-based Hutchison’s rights of control in India, a deal that cost the world’s largest telco $11.2 billion at the time. In January 2012, the Indian Supreme Court passed the judgement in favour of Vodafone, saying that the Indian Income tax department had "no jurisdiction" to levy tax on overseas transaction between companies incorporated outside India. However, Indian government thinks otherwise. It believes that if an Indian company, Hutchison India Ltd., conducts a financial transaction, government should get its tax out of it. Therefore, in 2012, India changed its Income Tax Act retrospectively and made sure that any company, in similar circumstances, is not able to avoid tax by operating out of tax-havens like Cayman Islands or Lichtenstein. In May 2012, Indian authorities confirmed that they were going to charge Vodafone about 20000 crore (US $3.3 billion) in tax and fines. The second phase of the dispute is about to start. The Bombay high court directed the Income-Tax Appellate Tribunal (ITAT) to hear a Rs.8,500 crore transfer- pricing tax dispute relating to the Indian arm of Vodafone Group Plc from 21 February on a daily basis till a final order is passed. 4.2 What’s really at stake in the Vodafone tax case The Supreme Court judgment in the Vodafone case argues that the 'corporate veil' cannot be pierced as long as there was no intention to avoid taxes. Rahul Varman on how and why corporations in India manage to undermine the law and the public good for the sake of private profit.The case concerns a tax dispute between the Vodafone group and the Indian income tax (IT) authorities over the acquisition by Vodafone International Holdings BV (VIH) (part of the Vodafone group and a company resident for tax purposes in the Netherlands) of the entire share capital of CGP Investments (Holdings) Ltd (a company incorporated in Hong Kong but resident for tax purposes in the Cayman Islands) on February 11, 2007 for about $11 billion (Rs 55,000 crore) from Hutchison Telecommunications International Ltd (HTIL). CGP, through various intermediate companies/contractual arrangements, controlled 67% of Hutchison Essar Limited (HEL), an Indian company. The acquisition resulted in Vodafone acquiring control over Hutch- Essar, a joint venture between the Hutchison group and the Essar group, which had obtained telecom licences to provide cellular telephony in different circles in India in November 1994. Because the sale was supposed to have been made overseas, no taxes were paid in India. PART-4 4.1 Vodafone-Hutchison tax case Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax Department over its purchase of Hutchison Essar Telecom services in April 2007. It was being alleged by the Indian Tax authorities that the transaction involved purchase of assets of an Indian Company, and therefore the transaction, or part thereof was liable to be taxed in India. Vodafone Group Plc. entered India in 2007 through a subsidiary based in the Netherlands, which acquired Hutchison Telecommunications International Ltd’s (HTIL) stake in Hutchison Essar Ltd (HEL)—the joint venture that held and operated telecom licences in India. This Cayman Islands transaction, along with several related agreements, gave Vodafone control over 67% of HEL and extinguished Hong Kong-based Hutchison’s rights of control in India, a deal that cost the world’s largest telco $11.2 billion at the time. In January 2012, the Indian Supreme Court passed the judgement in favour of Vodafone, saying that the Indian Income tax department had "no jurisdiction" to levy tax on overseas transaction between companies incorporated outside India. However, Indian government thinks otherwise. It believes that if an Indian company, Hutchison India Ltd., conducts a financial transaction, government should get its tax out of it. Therefore, in 2012, India changed its Income Tax Act retrospectively and made sure that any company, in similar circumstances, is not able to avoid tax by operating out of tax-havens like Cayman Islands or Lichtenstein. In May 2012, Indian authorities confirmed that they were going to charge Vodafone about 20000 crore (US $3.3 billion) in tax and fines. The second phase of the dispute is about to start. The Bombay high court directed the Income-Tax Appellate Tribunal (ITAT) to hear a Rs.8,500 crore transfer- pricing tax dispute relating to the Indian arm of Vodafone Group Plc from 21 February on a daily basis till a final order is passed. 4.2 What’s really at stake in the Vodafone tax case The Supreme Court judgment in the Vodafone case argues that the 'corporate veil' cannot be pierced as long as there was no intention to avoid taxes. Rahul Varman on how and why corporations in India manage to undermine the law and the public good for the sake of private profit.The case concerns a tax dispute between the Vodafone group and the Indian income tax (IT) authorities over the acquisition by Vodafone International Holdings BV (VIH) (part of the Vodafone group and a company resident for tax purposes in the Netherlands) of the entire share capital of CGP Investments (Holdings) Ltd (a company incorporated in Hong Kong but resident for tax purposes in the Cayman Islands) on February 11, 2007 for about $11 billion (Rs 55,000 crore) from Hutchison Telecommunications International Ltd (HTIL). CGP, through various intermediate companies/contractual arrangements, controlled 67% of Hutchison Essar Limited (HEL), an Indian company. The acquisition resulted in Vodafone acquiring control over Hutch- Essar, a joint venture between the Hutchison group and the Essar group, which had obtained telecom licences to provide cellular telephony in different circles in India in November 1994. Because the sale was supposed to have been made overseas, no taxes were paid in India. PART-4 4.1 Vodafone-Hutchison tax case Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax Department over its purchase of Hutchison Essar Telecom services in April 2007. It was being alleged by the Indian Tax authorities that the transaction involved purchase of assets of an Indian Company, and therefore the transaction, or part thereof was liable to be taxed in India. Vodafone Group Plc. entered India in 2007 through a subsidiary based in the Netherlands, which acquired Hutchison Telecommunications International Ltd’s (HTIL) stake in Hutchison Essar Ltd (HEL)—the joint venture that held and operated telecom licences in India. This Cayman Islands transaction, along with several related agreements, gave Vodafone control over 67% of HEL and extinguished Hong Kong-based Hutchison’s rights of control in India, a deal that cost the world’s largest telco $11.2 billion at the time. In January 2012, the Indian Supreme Court passed the judgement in favour of Vodafone, saying that the Indian Income tax department had "no jurisdiction" to levy tax on overseas transaction between companies incorporated outside India. However, Indian government thinks otherwise. It believes that if an Indian company, Hutchison India Ltd., conducts a financial transaction, government should get its tax out of it. Therefore, in 2012, India changed its Income Tax Act retrospectively and made sure that any company, in similar circumstances, is not able to avoid tax by operating out of tax-havens like Cayman Islands or Lichtenstein. In May 2012, Indian authorities confirmed that they were going to charge Vodafone about 20000 crore (US $3.3 billion) in tax and fines. The second phase of the dispute is about to start. The Bombay high court directed the Income-Tax Appellate Tribunal (ITAT) to hear a Rs.8,500 crore transfer- pricing tax dispute relating to the Indian arm of Vodafone Group Plc from 21 February on a daily basis till a final order is passed. 4.2 What’s really at stake in the Vodafone tax case The Supreme Court judgment in the Vodafone case argues that the 'corporate veil' cannot be pierced as long as there was no intention to avoid taxes. Rahul Varman on how and why corporations in India manage to undermine the law and the public good for the sake of private profit.The case concerns a tax dispute between the Vodafone group and the Indian income tax (IT) authorities over the acquisition by Vodafone International Holdings BV (VIH) (part of the Vodafone group and a company resident for tax purposes in the Netherlands) of the entire share capital of CGP Investments (Holdings) Ltd (a company incorporated in Hong Kong but resident for tax purposes in the Cayman Islands) on February 11, 2007 for about $11 billion (Rs 55,000 crore) from Hutchison Telecommunications International Ltd (HTIL). CGP, through various intermediate companies/contractual arrangements, controlled 67% of Hutchison Essar Limited (HEL), an Indian company. The acquisition resulted in Vodafone acquiring control over Hutch- Essar, a joint venture between the Hutchison group and the Essar group, which had obtained telecom licences to provide cellular telephony in different circles in India in November 1994. Because the sale was supposed to have been made overseas, no taxes were paid in India.
  30. 30. The IT authorities in India contended that the primary aim of this transaction was to acquire 67% controlling interest in Hutchison Essar Limited, a company resident in India. They therefore sought to tax capital gains under Section 9(1)(i) of the Indian Income Tax Act 1961 arising from the sale of the share capital of CGP on the basis that CGP, while not a tax resident in India, holds the underlying Indian asset. According to the tax authorities the profit made by Hutchison Hong Kong, while it sold its shares of Hutch-Essar to Vodafone, was generated in India. Therefore, Vodafone, the buyer of the shares, had an obligation to withhold and pay the tax in India, before making the payment to Hutchison. The tax demand was $2.5 billion (Rs 11,000 crore, as much as the entire MNREGA budget in 2007). Vodafone contested, stating that neither Vodafone nor Hutch was liable to pay the tax as both the companies were located outside India and the deal happened outside India. Vodafone is a British multinational telecommunications company headquartered in London. It is the world's largest mobile telecommunications company measured by revenues ($73.5 billion in 2011) and the world's second-largest in terms of subscribers, with over 439 million subscribers as of December 2011. In 2011 it earned profits of $12.6 billion, while it owned assets worth $242 billion and had an employee base of 83,862 . Vodafone India currently is the third largest mobile network operator in India. Vodafone filed a writ petition in the Bombay High Court challenging the jurisdiction of the tax authorities. In September 2008 the Bombay High Court held that the transaction was one of transfer of capital assets situated in India, and accordingly, the Indian income-tax authorities had jurisdiction over the matter. It concluded that it would be simplistic to assume that the entire transaction between HTIL and VIH was fulfilled merely upon the transfer of a single share of CGP in the Cayman Islands. The two-judge bench noted that "The commercial and business understanding between the parties postulated that what was being transferred from HTIL to VIH BV was the controlling interest in HEL…. HEL was at all times intended to be the target company and a transfer of the controlling interest in HEL was the purpose which was achieved by the transaction" . The Supreme Court verdict The case went up to the Supreme Court and, based on two key but independent arguments, the highest court concluded that there was no merit in the High Court's verdict. The first line of reasoning was that the transaction between Vodafone and Hutch was a share transfer (sale) rather than a transfer of capital assets and that the ownership of the capital assets remained vested in the Indian company. The judgment took recourse to the legal distinction between a company and its shareholders and thus the judgment does not make a distinction between shareholding that constituted a controlling interest and that which was a pure financial investment. Consequently it becomes completely immaterial in this specific case that the share(s) actually transferred were not of the company located in India but of offshore companies that ultimately controlled the shares that constituted the controlling interest in the Indian company. Even if the shares were of a company located in India, in the court's view it would not have constituted a transfer of capital assets. Once it is accepted that the shareholders of a company have a legal identity distinct from
  31. 31. the company, no matter what the proportion of shares they hold, it follows that the two companies would have distinct identities even if one held a controlling share in the other. The Supreme Court judgment makes it a point to emphasise that even a subsidiary has an identity that is distinct from its parent holding company . The second interesting aspect of the Supreme Court judgment is that it argues for a "look at" test in which tax authorities consider the entire Hutchison structure as it existed, "holistically", at its face value, and not adopt a "dissecting approach". In other words, authorities should not ask whether the transaction is a tax avoidance method, but apply the "look at" test to ascertain its legal nature. The Supreme Court was not in favour of the High Court's "look through" test because, it claimed, this was inconsistent with the need for certainty and consistency of tax policies that are crucial for taxpayers' confidence (especially foreign investors). The judgment argues that such a going behind the "corporate veil" or looking through would be legitimate only in cases where it can be established that there is a deliberate intention of evading taxes. In the Supreme Court's view no such inference can be made in this case if the steps that led to the creation of the complex holding structure of Vodafone and the eventual Vodafone-Hutch transaction were seen in the proper context. According to the court the structuring of the transfer of control from Hutch to Vodafone was not done with the specific intention of avoiding taxes. Hence the corporate veil need not be pierced and the fact that there was a transfer of control from Hutch to Vodafone must be ignored. And thus the tax authorities should concern themselves only with the corporate structure or "form" of a merger deal, and not the "substance" of what assets are changing hands. An additional implication of the judgment is that as long as it can be established that a mechanism was not originally created with the intention of avoiding taxes, it does not matter if it eventually led to such a consequence. The court has directed that when assessing whether an entity is evading the tax law, the authorities have to examine whether the means of evasion (which here is the creation of CGP, Hutchison's Cayman Islands unit) was originally intended for this purpose. Since Hutchison made its investments and engaged in activities in India (in collaboration with Essar) for several years before the deal and during that period CGP existed, the latter is not to be seen as primarily created to avoid capital gains . The underlying issues involved For a layperson who is not concerned with the technicalities of tax law and jurisprudence, the case is significant for three important issues. Why 'look at' and not 'look through'? The first interesting issue that arises is why authorities should look at and not look through the transactions, especially if what is being examined are complex transactions of mammoth corporations like Vodafone? After all, even simple cases of wrongdoing may not be caught out without looking at the substance of the act beyond the mere form of what is being claimed by the parties. According to Girish Dave, retired chief commissioner of income tax, Mumbai, who was closely involved in scrutinising the Vodafone-Hutch deal:
  32. 32. "This entire investment was not in purchase of one share of one US dollar of CGP's only capital. The investment was in the Indian mobile telecommunication business. CGP had no balance sheet as it had no accounts, no profit and loss account, so a question arises how this value of US $11.2 billion was arrived at when no accounts of CGP were available even in the due diligence report of E(rnst)&Y(oung). If this investment was in the telecom business in India, a natural corollary would be that it was this investment in entirety which was in fact sold. Investment was not in one share of CGP, for which in the year 1998 Hutchison may have paid one US dollar to Ms Nicole Melia from whom it acquired that one share." Ostensibly this needs to be done to attract foreign investment, but as Supreme Court lawyer Prashant Bhushan points out, in this deal no foreign investment as such is involved, as the Indian telecom company has merely been transferred from one company to another without any additional foreign investment. Why Cayman Islands? The second interesting aspect is that the court chooses to ignore the fact that the merger deal was structured through a corporate vehicle stationed in the tax haven of Cayman Islands. In the Supreme Court's view, since Hutch-Essar existed for several years before the 2007 deal and was an active corporate and taxpaying subject, the deal was perfectly legal and it cannot be said that the Cayman Islands were brought into the loop with the express purpose of tax avoidance. But the point is that what else could be the possible purpose of bringing Cayman Islands and vehicle stationed there into the deal if not tax avoidance? It is hard to imagine any other strategic advantage that Cayman Islands can bring in for a corporation like Vodafone. The Cayman Islands is a British Overseas Territory located in the western Caribbean Sea, which is just 264 km2 in area with a population of 55,000. Considered a refuge of pirates and deserters in the 17th century, the island has evolved into a tax haven which is now the fifth-largest banking centre in the world, with $1.5 trillion in banking liabilities. But this is not the first time that corporations in India have undermined the law and its underlying intent of public good for the sake of private profits. After all, the tax havens have been legitimised way back in 1982 when India signed the double tax avoidance agreement (DTAA) with Mauritius in order to attract foreign investments at the time of the launch of the first wave of 'economic liberalisation'. According to the IT Act if India has signed a DTAA, the taxpayer can pay tax in either of the two countries. But the catch here is that Mauritius has no capital gains tax, so a company doing a Vodafone-like deal in Mauritius will escape without paying any tax whatsoever. This has resulted in large amounts of investments being routed through Mauritius to avoid taxes and regulatory regimes in more established nation-states. Hence, due to the absence of capital gains tax and low tax rates on corporate profits, over 15,000 international companies have set up affiliate or associate firms in Mauritius. Not surprisingly, an economy which is all of $11 billion (same as the merger deal being discussed here!) is the single largest source of foreign investment for India. In recent years, Mauritius has accounted for approximately half of the annual inflows of FDI to India and around 40% of FII money that has come into the country's stock exchanges. Prof Arun Kumar of Jawaharlal Nehru University
  33. 33. (JNU) claims that a lot of this 'foreign investment' is the money that was laundered out of country and which is now being routed back through tax havens like Mauritius . Compartmentalisation of the corporate form Perhaps the most interesting and the least commented aspect of the Supreme Court judgment is that which takes us to the very heart of the contemporary debate regarding the nature of gigantic corporations like Vodafone. The judgment has upheld the principle of maintaining a clear-cut separation between companies and between companies and their shareholders . But the point is that if the holding companies, the subsidiaries and their respective shareholders are all different entities then how do we make sense of the complex and mammoth corporate structures like Vodafone that influence the lives of such large numbers of people and control enormous natural and public resources like spectrum globally? A bit of history here may help us put things in perspective. To begin with it was not usual for early corporations even in the US (where they first came to the fore) to be able to hold interests in another corporation -- in fact it was illegal. The earliest forms of corporations were those that had the clearest public purpose – churches, schools, universities (Harvard was chartered in 1688) and cities. Over time, the institutional form was used for public needs with clear economic benefits – canals, banks, bridges, and turnpikes. In the 18th century, corporations could come up only in the public domain through special parliamentary charters – they were provided with privileges like eminent domain (14), tax breaks, or monopoly rights only because they were supposed to deliver public goods, like waterways, roads, canals, banking, and other tasks which governments felt could not or should not be conducted privately as they were too risky, too expensive, too unprofitable, or too public, that is, perform tasks that would not have got done if left to the 'efficient' operations of the markets. Thus corporation arose as quasi-government agencies -- some of its particular features, such as limited liability, perpetual life, and parcellised ownership were established in order to compensate for the 'inefficient' tasks that they were assigned, where market would not support them . The debate whether a company could own shares in other companies was intense, and continued for decades in the US, as holding companies appeared, and were outlawed, followed by trusts, which were then outlawed, and finally by conglomerates, which successfully completed the redefinition of the nature of corporate property. US states varied considerably in their laws permitting stock ownership -- at one extreme Virginia prohibited stock ownership by corporations in other companies in the 1880s, while Pennsylvania allowed manufacturing companies to own railroad stocks to create spur lines to link their factories. When New Jersey allowed any corporation that incorporated in the state to own interests in other companies in 1888, corporations flocked for registration. By 1901, 66% of US firms with $10 million in capital or more, and 71% of those with $25 million or more were incorporated in New Jersey . Thus while we are debating the tax and welfare implications of the Vodafone case (and obviously they are far-reaching), the most basic question that ought to be asked is why such mergers should be allowed in the first place? Because the stark fact is that in the name of market forces and the law, what is driving such mergers is basically the intent to kill the possibilities of
  34. 34. market competition, in the name of which, ironically, such mergers and consolidations are mostly sanctified. Thus it is interesting that while such mergers are done in the name of market, efficiency and public welfare, their tax liabilities are also discounted in the name of public welfare, this time for investments and economic growth! And all this can always be justified by asserting that corporations are a legal fiction and cannot be said to have any purposive intent, as in the present judgment. And yet when it is convenient corporations can take the form of a natural person and acquire basic human rights like free speech and due process too! Historically, various arms of a democratic state have been complicit in this evolving form of corporations. Thus mammoth corporations can apparently keep acquiring new forms, new faces, and even new logic depending upon the issues at hand, even while there is a fundamental conflict between the private profits of global elites, whose handmaiden modern corporations have become, and the public interest of common people across the globe. Witness for instance the never-ending ordeal of the lakhs of victims of the world's worst industrial disaster in Bhopal in 1984, which happened at a site of one of the largest chemical corporations in the world at the time, Union Carbide. Within 10 years the plant was sold off to a so-called 'Indian' company which in 2001 in turn passed it off to one of the largest chemical companies in the world, Dow Chemical of the US. Of course now Dow claims that it has nothing to do with the never-settled liabilities of the accident towards the people of Bhopal, while it has acquired all its assets ! So tomorrow if it is found that spectrum was allocated illegally to Hutch-Essar in earlier years, we should be prepared to hear that Vodafone has nothing to do with it (of course Hutch and Essar will also wash their hands of this!), while it profits from the same spectrum . Framed in narrow legal terms and the limiting framework of the so-called welfare nation-states in the times of globalisation, it has become a continuously losing battle for the people at large. This tide can be turned only by a clear realisation that public good and modern corporations are inversely proportional to each other and this debate needs to be taken much beyond immediate tax and legal issues.
  35. 35. 4.3 The story so far 1. Offshore sale transaction between Hutchison Group, Hong Kong (Hutch) and Vodafone in the year 2007. 2. In the same year (2007), the tax authorities issued a show-cause notice to Vodafone, asking why it should not be treated as a defaulter for not deducting Indian withholding tax while making payments to Hutch. According to the tax authorities, this offshore transaction effectively resulted in transfer of an Indian asset and hence liable to capital gains tax in India. 3. The show-cause notice was challenged by Vodafone in a Writ Petition (WP) before the Bombay High Court (HC) which was dismissed in December 2008. The HC observed that prima facie Hutch had earned taxable capital gains in India as the income was earned from transfer of its business/ economic interest in the Indian company. The HC also took serious note of the fact that Vodafone did not produce some of the critical transaction documents which could have been instrumental in determining taxability of the transaction in India. 4. Thereafter, a Special Leave Petition (SLP) was filed by Vodafone before the SC. This SLP was dismissed and the SC directed the tax authorities to decide whether they had jurisdiction to proceed against Vodafone in the matter. However, the SC permitted Vodafone to challenge the decision of the tax authorities directly before the HC rather than first going through the normal channels of Commissioner (Appeals) and the Income Tax Appellate Tribunal. 5. In May 2010, the tax authorities passed an order taking the view that they had jurisdiction to proceed against Vodafone and accordingly treated the company as an 'assessee in default' for not withholding tax from payments made to Hutch even though it was an offshore deal between two non-resident parties. 6. Vodafone challenged this order of the tax authorities before the HC. The HC dismissed the case and ruled that the tax authorities indeed had jurisdiction to proceed against Vodafone as the income (capital gain) did accrue / arise in India by virtue of transfer of assets situated in India. 7. Aggrieved by the order of the HC, Vodafone approached the SC. 8. On 20 January 2012, the SC pronounced its ruling in favour of Vodafone holding that the transaction was not taxable in India and thus the company was not liable to withhold tax in India. 9. Soon thereafter, the Finance Act, 2012 amended Income Tax Act retrospectively to bring offshore indirect transfer of Indian assets (Vodafone like transactions) within the Indian tax net which triggered lot of criticism from the investor community globally. 10. Sensing the trouble and to allay fears of investors, the Prime Minister of India constituted an expert committee to review these retrospective amendments and to recommend changes to the government 11. The committee submitted its report in October 2012 to the government and since then there is no clarification or amendment as regards this provision Since last year, the attempts to settle the tax dispute between Vodafone and the Indian government is another endless saga. According to recent media reports, the outcome of the settlement process seems to be uncertain.
  36. 36. The mechanics of the settlement process being adopted in Vodafone's case is shrouded in mystery. The settlement process began with Vodafone initiating a dispute resolution system under the Bilateral Investment Promotion and Protection Agreement (BIPA) between India and the Netherlands and then wanting to resort to conciliation under the United Nations Commission on International Trade Law (UNICATRAL) rules while the Indian government wanted to have it under Indian laws. It is noteworthy that the ability to settle taxation matters under the Indian law is not free from doubt. Further, with Vodafone lately pressing for widening of the scope for conciliation to include its transfer pricing dispute as well, it is believed that the government is seeking to withdraw the conciliation talks which may now pave way for international arbitration proceedings. Under the BIPA, the dispute can be referred to an arbitral tribunal by either party to the dispute in accordance with UNICATRAL rules if the investor (Vodafone) so agrees. Thus, Vodafone may initiate the arbitration proceedings. According to the BIPA, the decision of the arbitral tribunal shall be final and binding and the parties shall abide by and comply with the terms of the award. One needs to wait and watch how this turns out. It is also understood that the Indian government may take a position that taxation matters are outside the purview of BIPA. From an equity and fairness perspective, Vodafone has a case to say that the position it took was based on its interpretation of the then existing law which even the apex court agreed to in its ruling delivered in January 2012. Importantly, where the tax authorities feel that it is demanding what is its rightful claim, the same is being demanded and enforced against the payer on account of its withholding tax non-compliance and not the payee to whom the income being taxed actually belongs. The expert committee constituted by the Prime Minister also recommended that the amendment which is not merely clarificatory in nature should be made prospectively and where it is made with retrospective effect, the payer should not be proceeded against and the provisions be applied to the payee to whom the income actually belongs. The way things stand currently, it is not quite clear as to in which direction this dispute is likely to move. Given that clarity and certainty in fiscal laws including tax laws is of paramount importance, one would like to believe that post the upcoming elections, the next government is likely to give full attention to this long outstanding issue and seek to resolve it on a priority basis to maintain and promote India's image as an investor friendly country. To this outstanding dispute, the latest addition is the Rs 3,700 crore tax demand on Vodafone on account of a transfer pricing dispute with the tax authorities. The authorities have taken a position that transfer pricing adjustments need to be made in the context of sale of call centre business. This new controversy is now before the Income Tax Appellate Tribunal for adjudication and ruling. It appears from latest media reports that the Indian government will look at conciliation route in respect of indirect transfer dispute (Hutch Essar deal) once the Tax Tribunal has given its ruling on the latest transfer pricing related dispute.
  37. 37. 4.4 Vodafone wins $490 million tax dispute in Bombay High Court May 20, 2014 The Bombay High Court ruled in favour of Vodafone (VOD.L) on Friday in a long-running dispute with the Indian taxman, a boost for the British telecoms group whose tax battles have been seen as emblematic of the troubles facing foreign investors in India. Vodafone, the biggest foreign corporate investor in India, has been caught in a string of tax disputes since it entered the country seven years ago, hoping to tap the world's second-biggest mobile phone market by customer numbers.Vodafone's treatment, seen by many investors as heavy-handed, has fuelled debate over India's unpredictable rules and regulations. In the case decided on Friday, India's tax office had accused Vodafone India Services Private Ltd - a unit of the group - of under-pricing shares in a rights issue to its parent, and had demanded tax of about 30 billion rupees ($490 million). The tax demand was for two financial years to March 2011, Vodafone said. "Vodafone has maintained consistently throughout the legal proceedings that this transaction was not taxable," the company said in a statement welcoming the ruling. Transfer pricing is the value at which companies trade products, services or assets between units in different countries - a regular part of doing business for a multinational, but a practice which tax authorities often feel can be exploited. Rules require all cross-border transactions between group companies to be valued at arm's length - or as if the transaction was with an unrelated company. Several other multinational including IBM Corp (IBM.N), Royal Dutch Shell Plc (RDSa.L) and Nokia Oyj (NOK1V.HE) are also fighting transfer-pricing cases in India. Tax claims on foreign firms in the past year has been a major concern for investors. "The decision will set to rest a lot of controversies and would go a long way in encouraging foreign investments," S.P. Singh, a senior director at Deloitte Haskins and Sells, said after the court ruling. Separately, Vodafone is contesting a more than $2 billion tax demand over its acquisition of Indian mobile operations in 2007 from Hutchison Whampoa (0013.HK). The lure of India's growing market, however, has continued to attract Vodafone. This year it spent $1.7 billion to fully own its main Indian unit, Vodafone India Ltd, which is the nation's No.2 mobile phone carrier. Vodafone India bought radio airwaves worth more than $3 billion in a government auction in February to beef up services.($1 = 61.2400 rupees)
  38. 38. PART-5 5.1 Financial projections of Vodafone Income statement Profit & Loss statement Profit & Loss Year Ended 31 March 2014 2013 2012 2011 2010 £ millions Turnover 38346.0 38041.0 46417.0 45884.0 44472.0 Operating Profit -4191.0 -2777.0 6224.0 537.0 4738.0 Net Interest -1208.0 -1291.0 -1476.0 880.0 -796.0 Profit Before Tax -5270.0 -3483.0 9549.0 9498.0 8674.0 Profit After Tax 11312.0 -3959.0 7003.0 7870.0 8618.0 Total Dividend n/a n/a n/a n/a n/a Retained Profit / Loss n/a n/a n/a n/a n/a Key Figures Year Ended 31 March 2014 2013 2012 2011 2010 Earnings Per Share Basic (p) 42.10 -15.66 13.74 15.20 16.44 Earnings Per Share Diluted (p) 41.77 -15.66 13.65 15.11 16.36
  39. 39. Earnings Per Share Adjusted (p) 17.54 20.12 14.91 16.75 16.11 Earnings Per Share Growth (%) -13 35 -11 4 -6 Total Dividend (p) 11.00 10.19 9.52 8.90 8.31 Operating Margin (%) -11 -7 13 8 11 ROCE (%) -7 -2 19 15 16 Dividend Cover 1.59 1.97 1.57 1.88 1.94 Dividend Yield 5.00 5.20 5.30 4.80 5.20 Price / Earnings Ratio 12.60 9.70 12.00 11.00 9.80 Dividend Per Share Growth (%) 8 7 7 7 7 Balance sheet of Vodafone
  40. 40. Financial ratio analysis Vodafone Group‟s financial performances are analyzed by utilizing the liquidity, profitability and debt management ratios, compared to the industry norm cited from Hoover‟s, Strategic Analytics, and Ycharts. Liquidity ratio  Current ratio Current assets normally are comprised of cash, accounts receivable, inventories, and marketable securities. Current liabilities include accounts payable, short-term notes payable, current portion of long-term debt, accrued taxes, wage, and other accrued expenses. The current ratio indicates “the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future”. The current ratio is calculated by dividing current assets by current liabilities. A current ratio of one means that book value of current assets is exactly the same as book value of current liabilities. In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations. If the ratio is too high, the company may not be efficiently using its current assets or short term financing facilities. Account 31 March 2014 31 March 2013 31 March 2012 31 March 2011 31 March 2010 Current assets 24,722.00m 21,649.00m 20,025.00m 17,003.00m 14,219.00m Current liabilities 25,039.00m 28,369.00m 24,025.00m 27,075.00m 28,616.00m Current Ratio 0.98 0.76 0.83 0.62 0.49 Graph of Current Assets & Current Liabilities 14,219.00 17,003.00 28,616.00 27,075.00 0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 31/3/2010 31/3/2011 Financial ratio analysis Vodafone Group‟s financial performances are analyzed by utilizing the liquidity, profitability and debt management ratios, compared to the industry norm cited from Hoover‟s, Strategic Analytics, and Ycharts. Liquidity ratio  Current ratio Current assets normally are comprised of cash, accounts receivable, inventories, and marketable securities. Current liabilities include accounts payable, short-term notes payable, current portion of long-term debt, accrued taxes, wage, and other accrued expenses. The current ratio indicates “the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future”. The current ratio is calculated by dividing current assets by current liabilities. A current ratio of one means that book value of current assets is exactly the same as book value of current liabilities. In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations. If the ratio is too high, the company may not be efficiently using its current assets or short term financing facilities. Account 31 March 2014 31 March 2013 31 March 2012 31 March 2011 31 March 2010 Current assets 24,722.00m 21,649.00m 20,025.00m 17,003.00m 14,219.00m Current liabilities 25,039.00m 28,369.00m 24,025.00m 27,075.00m 28,616.00m Current Ratio 0.98 0.76 0.83 0.62 0.49 Graph of Current Assets & Current Liabilities 17,003.00 20,025.00 21,649.00 24,722.00 27,075.00 24,025.00 28,369.00 25,039.00 31/3/2011 31/3/2012 31/3/2013 31/3/2014 current assets current liabilites Linear (current assets) Linear (current liabilites) Financial ratio analysis Vodafone Group‟s financial performances are analyzed by utilizing the liquidity, profitability and debt management ratios, compared to the industry norm cited from Hoover‟s, Strategic Analytics, and Ycharts. Liquidity ratio  Current ratio Current assets normally are comprised of cash, accounts receivable, inventories, and marketable securities. Current liabilities include accounts payable, short-term notes payable, current portion of long-term debt, accrued taxes, wage, and other accrued expenses. The current ratio indicates “the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future”. The current ratio is calculated by dividing current assets by current liabilities. A current ratio of one means that book value of current assets is exactly the same as book value of current liabilities. In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations. If the ratio is too high, the company may not be efficiently using its current assets or short term financing facilities. Account 31 March 2014 31 March 2013 31 March 2012 31 March 2011 31 March 2010 Current assets 24,722.00m 21,649.00m 20,025.00m 17,003.00m 14,219.00m Current liabilities 25,039.00m 28,369.00m 24,025.00m 27,075.00m 28,616.00m Current Ratio 0.98 0.76 0.83 0.62 0.49 Graph of Current Assets & Current Liabilities 24,722.00 current assets current liabilites Linear (current assets) Linear (current liabilites)

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