Emerging markets is where international businesses go to grow, and the telecommunications companies have been trying to etch out a piece of the developing world’s market share. Still, while telecom related exchange traded funds (ETFs) would generally benefit from the phenomenal growth in the developing markets, those regions are not a sure fire way for businesses to generate quick profits.
Vodafone (NYSE: VOD) has become India’s third-largest mobile phone company, but after investing $11 billion into the country, the firm found that high growth came with some unexpected costs, reports Heather Timmons for The New York Times. For instance, Vodafone was hit with a $2.5 billion tax bill, fierce competition forced Vodafone to write down the value of its India branch by $3.5 billion, and more recently, government malfeasance has delayed industry consolidation. [
Robert Grindle, an analyst with Deutsche Bank in London, commented that “the combination of the capital gains tax, uncertain regulation and the very tough competitive environment has caused investors to say it wasn’t great timing” to go through with the deal.
Marten Pieters, the chief executive of Vodafone’s India business, recently acknowledged that in the emerging markets, “there are new hurdles every day, and they can change the rules of the market as you are playing it.” The result is that “if you don’t have the stomach for that, please don’t come,” Pieters remarks.
Nevertheless, the Vodafone India operations has produced some of the fastest growth, with an estimated 125 customers, or a sixfold increase from previous projections. Mobile phone usage is increasing for middle- to lower-income customers, and in rural areas that are gaining access to service.
- iShares S&P Global Telecommunications Index Fund (NYSEArca: IXP)
- SPDR S&P International Telecommunications Sector ETF (NYSEArca: IST)
Max Chen contributed to this article.