Vodafone faces pricing hurdle in India

New Delhi: Ruchira Sharma should be any mobile-phone company's dream. She has two cell-phone numbers and endless gossip to share with friends and family across the country. Problem is, she's in India, where calling rates are very less, by far the lowest in the world. So her carrier - Vodafone Essar, a unit of Britain's Vodafone Group - isn't making much from her gabbing.

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In May 2007, the company paid $11.2 billion for 67 percent of what would become Vodafone Essar. The Indian operation was the centerpiece of an ambitious expansion in emerging markets to make up for slowing sales in Europe. Vodafone, though, didn't factor in a price war that in October culminated in 50 percent cuts in rates and a switch to per-second billing (instead of one-minute increments—a big saving for people who make short calls). "Emerging markets can no longer offset problems at home," says Emeka Obiodu, an Analyst at Ovum, a telecom advisory firm in London. "There's now too much competition for easy growth."

Vodafone's Indian unit has lost $64 million on some $10 billion in revenues since the purchase, and that was before the latest round of price cuts. Costs, meanwhile, will keep rising. Most new customers are in rural areas, where providing service is more expensive. And villagers use their phones sparingly, so Vodafone's average revenue per user in India has fallen to $5.30 per month from $8.79 two years ago.