BRITAIN’S two flagship telecoms companies will this week announce deeper cost cutting to compensate for sluggish sales growth.

Alongside half-year results, Vodafone and BT are expected to increase savings targets from £1 billion and “well over” £1 billion respectively.

Vittorio Colao, Vodafone’s chief executive, believes he can squeeze at least another £500m from the cost base. He will also warn on Tuesday that a bruising price war in India is harming the group’s once-explosive growth prospects on the subcontinent. New entrants including Tata have slashed prices to seize market share and Vodafone has been forced to retaliate.

India has been crucial in offsetting the sales declines that Vodafone is still suffering in Europe. Terence Sinclair, a telecoms analyst at Citi, calculates that India represents 15% of Vodafone’s profit growth. Colao is expected to warn that the 23% sales increase enjoyed last quarter in India is unlikely to be repeated in the short term.

To make matters worse, Vodafone has been given until November 16 by the Indian tax authorities to explain why it has not settled a $2 billion (£1.2 billion) tax bill left over from the $11.2 billion acquisition that gained it entry to the country in 2007. Vodafone argues that it was an offshore deal and is likely to request an extension to the deadline.

The company forecast in May that operating profits would be at best flat this year, when Colao set a range of between £11 billion and £11.8 billion.

Meanwhile, analysts say BT can cut at least £1.3 billion from its costs. Ian Livingston, the chief executive, will up his forecast for savings. BT will report on Thursday it is close to staunching the cash flowing out of its Global Services division.

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