Vodafone Group Plc’s (ADR) (NASDAQ:VOD) may be exposed to losses in its dealings in developing countries particularly in countries where conflict is ongoing or possible in the future. The company operates data providers in 30 countries and has partnered with providers in 40 more. It is the largest mobile operator by revenue in the world.
However trouble may be brewing for the company as its activities suffer from political as well as consumer exposure. The Egyptian branch of the company may be in for a rough time after the risings last year hit its operations. The company’s announcement of it’s earnings in the first half of 2011 were not inspiring showing flat revenues though an increasing customer base.
Vodafone has been operating in Egypt since 1998 and was formerly known under the name Click GSM. It is the country’s largest mobile data provider. The Vodafone Group owns 54.9% of the shares while Telecom Egypt maintains a 44.7% shareholding. The company was hit hard by the protests in Egypt last year which led to a decrease in usage. News reported on today over the possible censorship of Egypt’s internet access by authorities may impact further on the company’s revenues.
The real problem for the group is in Egypt and other emerging countries may be a matter of politics rather than competition. The area it operates in is one of grave interests to government whos seek to take control of information flows in times of crisis.
Vodafone is well aware of this as it shut down its operations on the 28th of January 2011 in accordance with the wishes of then president Hosni Mubarak. The political lessons of being a company in an emerging economy with an autocratic government have previously been learned by Google who felt forced to pull out of China in 2010. The state in Egypt exercises too much control over the company’s working for it to be a safe bet.
The burgeoning conflict in Egypt, between the Islamist Muslim Brotherhood and the Military, may cause more trouble for Vodafone Egypt and the group as a whole if it escalates. At the moment a conflict of interest is shaking the uneasy alliance between the two power blocks as the country moves toward a presidential election.
The fractured nature of power in the country of 80 million people and the shifting and uncharted political waters it finds itself in could lead anywhere. The previous control taken over communications companies in last years troubles show the leadership in Egypt is not above exercising it power in private industry, especially those involved in communication.
Should the country drift into a more protracted power struggle the Vodafone group could see its assets in danger and its control over its infrastructure threatened. The country’s Egyptian holding represent billions in investment by the group and any change in fortunes there would result in a very bad year indeed for the firm. The company’s shares meanwhile are running high on the FTSE exchange trading at around £174.31. It’s 52 week high is 183.44
